Brent rises towards $110 on MidEast tensions, US budget hopes

Brent crude climbed towards US$110 a barrel on Thursday, as US lawmakers appeared to be inching closer to a deal on the "fiscal cliff" and tensions in the Middle East worsened, although investors remained wary of the outlook for oil demand next year.

Asian shares rose on Thursday, tracking bourses in the United States and Europe overnight on improved sentiment about a deal on key US budget talks, with President Barack Obama suggesting he was optimistic about concluding discussions before Christmas.

The United States is the world's biggest crude oil consumer.

"Right now it's all on the US, if they can get a deal on the fiscal cliff, they will be on their way to a sustained economic recovery," said Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo.

"There is so much [emphasis] put on China and Asia leading a global recovery, but the sense now is that the US needs to get on a path to recovery and then pull the rest of the world right along with it."

Brent crude was up 27 cents at US$109.78 a barrel by 0440 GMT while US crude gained 31 cents to US$86.80 a barrel, following losses in the previous session.

Oil markets have been under pressure due to uncertainty over fuel demand in 2013, as the global economy continues to sputter along.

"The market is balanced for now, but as we look out beyond February, and down into the start of the second quarter, it looks oversupplied," Nunan said.

"We'll continue to see rangebound trading, especially with geo-political risk expanding through the Middle East."

Protests on the streets of Egypt entered a seventh day on Tuesday, as President Mohamed Mursi tries to call for unity even as he attempts to push through constitutional changes to give himself sweeping powers.

The death of a Saudi diplomat and his Yemeni bodyguard in Yemen's capital Sanaa on Wednesday, and comments from Iran that it was determined to press on with uranium enrichment ahead of possible talks with world powers, added further support to oil.

"You can't help but ignore the elephant in the room, which has been there for some time - Iran," Nunan said.

"Attention was diverted away from them briefly with the Gaza-Israel offensive, but you see the missiles being fired by Hamas were coming from Iran."

Israel and its Western allies accuse Iran of trying to develop a nuclear bomb, while Tehran insists its nuclear programme is purely for civilian use.

US crude oil inventories fell 347,000 barrels in the week to November 23, to 374.12m barrels, after analysts polled by Reuters had forecast a build of about 300,000 barrels.

US gasoline stockpiles rose a sharp 3.87m barrels to 204.26m barrels, compared with expectations for a smaller 900,0000 barrel build.