Oil rose to the highest level in more than three months after U.S. lawmakers passed a bill to undo automatic tax increases and spending cuts that had threatened growth in the world’s biggest oil-consuming country.
Futures climbed 1.4 percent as the House of Representatives approved a Senate measure to reverse higher income taxes for more than 99 percent of households. President Barack Obama said he will sign it into law. Oil reduced gains as the euro erased an advance against the dollar.
“The congressional action has made people feel a lot more optimistic about the U.S. economy, and we are seeing a big move up for oil,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The big thing is that there is no tax increase for most people.”
West Texas Intermediate for February delivery rose $1.30, or 1.4 percent, to $93.12 a barrel on the New York Mercantile Exchange, the highest settlement level since Sept. 18.
The futures dropped 7.1 percent last year, the first decline since 2008. Trading was closed yesterday for the New Year’s Day holiday. The volume for WTI oil contracts was 3.3 percent below the 100-day average at 3:16 p.m. in New York.
Brent for February settlement rose $1.36, or 1.2 percent, to $112.47 a barrel on the London-based ICE Futures Europe exchange. The North Sea grade advanced 3.5 percent in 2012, a fourth annual gain. The number of contracts trading was 0.6 percent less than the 100-day average.
The euro fell 0.2 percent against the dollar after rising as much as 0.7 percent. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.
The House approved reinstating cuts that expired Dec. 31 on taxable individual income of up to $400,000 and $450,000 for married couples. The bill leaves higher earners with a marginal tax rate of 39.6 percent, up from 35 percent in 2012. It also extends expanded unemployment benefits and continues refundable tax credits for low-income families and college students.
“Investors are euphoric because we’ve avoided going over the fiscal cliff,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The better growth outlook should keep prices rising for at least the next couple of weeks.”
The legislation passed the House by a vote of 257-167 after 11 p.m. yesterday in Washington. Republicans immediately turned to their next battle -- a bid to use the need to raise the nation’s $16.4 trillion debt ceiling to force Obama to accept cuts in entitlement programs such as Medicare.
“The debt ceiling is another huge fight,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “You still have quite a few substantial things out there that could really impede growth.”
WTI front-month closed above the 200-day moving average for the first time since Sept. 17 after touching above it in intraday trading on Dec. 31.
Ending above the average helps “maintain a lot of momentum,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago.
Oil also gained as manufacturing in the U.S. expanded in December at a pace that shows the industry is stabilizing. The Institute for Supply Management’s manufacturing index climbed to 50.7 last month from November’s 49.5, the weakest level since July 2009, the Tempe, Arizona-based group’s report showed today.
Fifty is the dividing line between expansion and contraction. The median forecast of economists surveyed by Bloomberg called for a rise to 50.5.
A government gauge of China’s manufacturing showed a third month of expansion yesterday, a sign that the recovery in the world’s second-biggest oil-consuming country will extend to this year.
“China’s manufacturing number is pretty solid and so is the U.S. ISM number,” Baruch said. “We have a deal worked out in Washington. If we continue to get solid data this week, I expect the market to break above the $95 level.”
Oil futures in New York last traded above $95 a barrel in September.
WTI slid in 2012 as the U.S. shale boom deepened a glut at Cushing, Oklahoma, America’s biggest storage hub and the delivery point for the New York contract. That left it at an average $17.48 a barrel below Brent last year, compared with a premium of about 95 cents in the 10 years through 2010. The difference was $19.35 a barrel today.