Oil capped its first monthly increase since August on signals that economic expansion in the U.S. is accelerating.
Futures rose 1 percent after the MNI Chicago Report’s business barometer showed activity in the U.S. grew in November for the first time in three months. Investors also weighed developments in U.S. budget talks as Democrats and Republicans discussed how to avoid more than $600 billion a year in spending cuts and tax increases known as the fiscal cliff.
“The Chicago numbers were a little better than expected,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It’s likely that we will end the year above $90 a barrel because of tightening inventories and the likelihood that there will be a budget agreement.”
Crude oil for January delivery advanced 84 cents to $88.91 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 19. Futures increased 0.7 percent this week and gained 3.1 percent this month. Prices are down 10 percent this year.
Brent oil for January settlement rose 47 cents, or 0.4 percent, to $111.23 a barrel on the London-based ICE Futures Europe exchange.
The MNI Chicago Report’s business barometer rose to 50.4 in November from 49.9 the prior month. A reading of 50 is the dividing line between expansion and contraction.
West Texas Intermediate crude in New York advanced yesterday after revised figures from the Commerce Department showed U.S. gross domestic product grew at a 2.7 percent annual rate last quarter, up from a 2 percent prior estimate.
Congressional Republicans rejected President Barack Obama’s tax-and-spending proposal. The plan calls for $1.6 trillion in tax increases and $400 billion in unspecified cuts. Republicans complained that Obama’s offer was little more than a rehash of old budget proposals, setting the stage for more contentious negotiations over the next several weeks.
“We are stalled in this area after reeling on each and every comment about the budget negotiations,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Some of the anxiety that would send the market one way or another has burned off.”
Treasury Secretary Timothy Geithner met separately yesterday with each of the top four leaders in Congress in their first direct talks since Nov. 16, when Obama hosted the leaders at the White House.
“We’re still in the early bargaining stage over the budget,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There will probably be a lot more whining before there’s progress. This should keep the market in a tight range.”
Prices also rose after the euro climbed against the dollar for a third day, increasing oil’s appeal as an investment alternative. The euro gained as much as 0.4 percent to $1.3028.
Oil surged earlier this month amid eight days of fighting between Israel and Hamas, which controls the Gaza Strip, before the two sides signed a Nov. 21 truce agreement. Protests erupted in Egypt after President Mohamed Mursi issued a Nov. 22 decree that prevents his actions from being challenged by the courts.
The U.S. Senate approved expanding the economic sanctions that have reduced Iran’s crude exports and earnings in an effort to force it to curb its suspected nuclear weapons program. Senators voted 94-0 today to add the new sanctions to the annual defense authorization bill under consideration on the floor.
“Geopolitical issues in the Middle East continue to support the oil market,” McGillian said.
The Middle East and North Africa accounted for 36 percent of global oil output and held 52 percent of proved reserves last year, according to BP Plc’s Statistical Review of World Energy.
OPEC oil production fell the most in 20 months in November, a Bloomberg survey showed. Output in the 12-member Organization of Petroleum Exporting Countries slipped 333,000 barrels, or 1 percent, to an average 31.519 million barrels a day this month from a revised 31.852 million in October, according to the survey of oil companies, producers and analysts.
Electronic trading volume on the Nymex was 368,770 contracts as of 3:07 p.m. Volume totaled 532,570 contracts yesterday, 1.4 percent higher than the three-month average. Open interest was 1.53 million.