The US House of Representatives looked set to end the "fiscal cliff" crisis in a vote later in the day on a bipartisan deal meant to prevent Washington from pushing the world's biggest economy into 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 49 cents to $111.60 a barrel by 0256 GMT. Brent closed 2012 averaging over $111 a barrel, the highest annual average on record, after geopolitical threats to production offset worries about flagging oil demand.
US crude was up 50 cents to $92.32 a barrel after settling on Monday at the highest since October.
"Given the rallies that we've seen in commodities and equities in the past few weeks, the market has come to the conclusion that a deal will be done," Michael McCarthy, a markets strategist at CMC Global Markets in Sydney said. The Republicans "can't afford to block this bill", he said.
Oil also gained support from robust Chinese data pointing to a recovery at the world's second largest economy and second biggest oil consumer, McCarthy said.
"That is adding to the demand picture of oil," he said.
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.
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.
Center>Copyright Reuters, 2013