Brent crude rose toward US$112 to hit a one-month high on Wednesday as the US Congress approved a deal to avert a fiscal crisis, while promising data from top energy consumer China also supported prices.
The US Congress has approved a rare tax increase that will hit the nation's wealthiest households in a bipartisan budget deal that stops the world's largest economy from falling into a deep fiscal crisis and recession.
The last-minute deal will allow the United States to stave off higher taxes and sharp spending cuts that could push its economy into recession and erode fuel demand at the world's largest oil consumer.
Brent crude for February delivery rose 66 cents to US$111.77 a barrel by 0449 GMT, its highest intraday price since early December. Brent ended 2012 averaging over US$111 a barrel, the highest annual average on record, after geopolitical threats to production offset worries about flagging oil demand.
US crude was up 74 cents to US$92.56 a barrel, after rising earlier to US$92.64, the highest since October.
"It's a short-term positive," Sijin Cheng, a commodities analyst at Barclays Capital said. "It's certainly been on investors' minds for a long time and any good news is quite a relief."
The United States will be tackling its debts next, and President Barack Obama has vowed to avoid a repeat of last year's divisive fight with Congress.
Oil also gained support from robust Chinese data pointing to a recovery at the world's second largest economy and second biggest oil consumer.
"That is adding to the demand picture of oil," said Michael McCarthy, a markets strategist at CMC Global Markets in Sydney.
China's official manufacturing purchasing managers' index held steady in December at 50.6, adding to evidence that its economy was picking up in the last three months of 2012 after slowing for seven straight quarters.
"It's further indication that China is recovering but we're not seeing a sharp rebound like the one we've seen a few years ago," Barclays' Cheng said.
The brighter outlook has prompted speculators to raise their net long positions in Brent crude oil futures and options for a second week running, IntercontinentalExchange data showed on Monday.
Technical charts showed Brent may rise further to US$112.41 a barrel after breaking through a resistance at US$111.31, Reuters market analyst Wang Tao said.
Analysts expect tensions in the Middle East to keep oil prices elevated in 2013.
Iran is carrying out naval drills in the Strait of Hormuz, aimed at showcasing its military capability in the shipping route through which 40 percent of the world's sea-borne oil exports pass.
Iran has threatened to block the strait if it comes under military attack over its disputed nuclear programme. The United States has said it would not tolerate any obstruction of commercial traffic through the strait.
Fighting continued in Syria as government war planes bombed opposition-held areas on New Year's Day.
On Friday, the leaders of Sudan and South Sudan will meet to discuss how to improve border security and resume vital oil flows. South Sudan stopped its entire oil production of about 350,000 barrels per day for most of 2012 following a dispute with Khartoum on oil transit fee.