Brent futures edged up near $109 a barrel on Wednesday, tracking a rally in most other risk assets on expectations that a budget crisis in the United States will be resolved, saving the world's top oil consumer from slipping into recession.
Asian shares rose, following a rally in US equities, and the euro hovered around multi-month highs on growing investor confidence for a US pact on spending and taxes before a year-end deadline. Oil may get additional support if US inventory data is close to that of an industry group that showed a sharp drawdown.
Brent crude edged up 11 cents to $108.95 a barrel by 0452 GMT, after settling $1.20 higher. US oil slipped 8 cents to $87.85, after ending 73 cents higher and breaking above the 50-day moving average of $87.64.
"There is more upside potential for Brent because of a revival in the overall economic outlook," said Yusuke Seta, a commodities sales manager at Newedge Japan.
"Supporting factors are prevailing over negative factors."
Political manoeuvring intensified over an agreement to keep the US economy from tumbling off the "fiscal cliff" next year as Republicans tried to wring more tax-rate concessions out of the White House on Tuesday.
"The divide between the two parties ... now appears to be just a hop, skip and jump away from a resolution being reached if recent market trajectory is anything to go by," Tim Waterer, a senior trader at CMC Markets in Sydney, wrote in a note.
"Until a deal is struck, the risk of unwinding the December gains early in the New Year remains a threat."
Simmering tension in the Middle East is also keeping oil prices elevated.
Iran remained defiant on its nuclear programme ahead of planned new talks with world powers. Israel has threatened air strikes on Iran if its nuclear work is not curbed through diplomacy or sanctions, raising the spectre of a Middle East war damaging to the global economy.
Brent is approaching a resistance at $109.02 per barrel, according to Reuters technical analyst Wang Tao. US oil faces a resistance zone of $88.28 to $88.37 and is expected to retrace to $86.80, he said.
Data from the American Petroleum Institute showed US crude stocks fell more than expected in the week to Dec. 14 as imports dropped and refined product stocks were mixed as processing rates rose.
Crude stocks fell by 4.1 million barrels against a forecast 1.1 million barrel drawdown in a Reuters poll. Investors are now awaiting inventory data due later in the day from the Energy Information Administration (EIA).
"Oil may get additional support if the US government data on stockpiles confirms what the industry data API has said," Newedge's Seta said.
US gasoline and heating oil futures edged up on Thursday after rising more than 1 percent the previous day on production issues at a major US refinery.
Motiva Enterprises would again halt some production at its new 325,000-barrel-per-day (bpd) crude distillation unit in Port Arthur, Texas, for more repairs.For all the latest GCC news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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