SINGAPORE: Brent crude rose around 1 percent to near $110 per barrel on Wednesday in thin trade as investors clung to hopes US lawmakers would come up with a last-minute deal to avert a fiscal crisis in the world's largest oil consumer.
US President Barack Obama may return to Washington from his Hawaiian holiday as early as Wednesday evening to address the unfinished "fiscal cliff" negotiations with Congress ahead of a year-end deadline, which would trigger harsh spending cuts and tax hikes.
Brent crude gained 81 cents to $109.61 a barrel by 1230 GMT, after settling 17 cents lower on Monday, the last trading day before Christmas. US crude was at $89.16, up 55 cents from Monday's close.
"There was not much Christmas cheer before the break, and whether that is rectified ahead of the New Year holiday will depend on whether or not politicians in Washington can agree on a deal ahead of the deadline," Chris Weafer, Sberbank chief strategist, said.
"The market is very thin. There are not that many participants, and thus it's easy to move markets up and down," said Ken Hasegawa, a commodity sales manager at Newedge Japan. He also predicted that US fiscal cliff talks would remain the main driver for the markets this week.
Oil prices on Friday dropped more than 1 percent after the US fiscal talks dissolved when Republican lawmakers withheld support for a proposal, but many investors doubt that lawmakers would risk tipping the fragile US economy into recession again.
Some investors are now looking at a stop-gap that would put everything off for a while as the most promising alternative. Such a fix could help delay the spending cuts and tax hikes further into 2013 as well as work to address in a long-term way a budget that has generated deficits exceeding $1 trillion in each of the last four years.
Oil was also supported by expectations Japan's new prime minister will pursue drastic stimulus policies to drive the economy of the world's third-largest oil consumer out of deflation.
Shinzo Abe was voted in as prime minister by parliament's lower house on Wednesday, giving the hawkish lawmaker a second chance at Japan's top job.
The yen fell to a 20-month low against the dollar on Wednesday, buoying the benchmark Nikkei stock average to nine-month highs.
MSCI's broadest index of Asia-Pacific shares outside Japan was little changed on Wednesday. Shanghai shares were flat but stayed in positive territory on the year after a 2.5 percent jump on Tuesday erased 2012 losses. It is set for the first annual gain in three years.
Oil also found support from tensions in the Middle East.
International envoy Lakhdar Brahimi pursued mediation efforts in Damascus on Tuesday, but there was no pause in the bloodletting in Syria.
More than 44,000 Syrians have been killed since a revolt against President Bashar al-Assad erupted 21 months ago, and government shelling killed more people on Wednesday.
A communique issued at the end of a two-day summit of the Saudi-led Gulf Cooperation Council (GCC) urged action to halt mass killings.
Center>Copyright Reuters, 2012
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