LONDON: Crude oil rose on Thursday on optimism that US lawmakers would reach a deal on fiscal policy and as mounting tension in the Middle East intensified supply concerns.
Brent crude was up 73 cents at $110.24 a barrel by 0937 GMT while US crude gained 70 cents to $87.19 a barrel, following losses in the previous session.
Demand sensitive assets were boosted on improved sentiment about a deal on 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.
However Michael Hewson, analyst at CMC Markets cautioned that the optimism may be short-lived.
"It's too early to start declaring victory. There's a long way to go, and there will be plenty more twists and turns and trading will continue to be choppy."
Fears of escalating violence in Egypt and worries about mounting tension elsewhere in the Middle East have revived concerns that supply from the region may be disrupted.
Egyptian President Mohamed Mursi will address the nation on Thursday, calling for unity as he pushes through a new constitution but critics said the Islamist-dominated assembly's bid to finish the constitution quickly could make matters worse.
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, also supported oil.
"You can't help but ignore the elephant in the room, which has been there for some time -- Iran," Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo 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.
A fall in US crude oil stockpiles added to the more bullish tone. Inventories fell 347,000 barrels in the week to Nov. 23, to 374.12 million barrels, after analysts polled by Reuters had forecast a build of about 300,000 barrels.
US gasoline stockpiles rose a sharp 3.87 million barrels to 204.26 million barrels, compared with expectations for a smaller 900,0000 barrel build.