Oil prices rise on US cliff deal hopes

Oil prices surged higher Monday after US politicians signaled a last-minute compromise deal was in view to avert driving the economy over a fiscal cliff toward recession. New York's main contract, light sweet crude for delivery in February, gained $1.02 from Friday to close at $91.82 a barrel. Brent North Sea crude for February settled at $111.11 a barrel, up 49 cents. Over the year, New York's West Texas Intermediate fell 7 percent from the last day of trade in 2011, while Brent rose 3 percent. Oil prices earlier had been under pressure amid US political deadlock on a bipartisan deficit reduction deal that would avoid the cliff of automatic sharp tax hikes and spending cuts due to begin taking effect at midnight. Oil prices surged after President Barack Obama, in a nationally televised statement from the White House, said an agreement to prevent the tax hike is "within sight." "The market experienced significant volatility during Obama's comments on fiscal negotiations and ended up closing near today's highs," BMO Capital Markets analysts wrote in a market note. "People are getting optimistic about the fiscal cliff," said Michael Lynch of Strategic Energy and Economic Research. "They feel that if even it is not done tonight it will be done in the next day or so, so that there won't be any serious negative impact on the economy." Lynch said that positive news in China, the world's biggest energy consumer and driver of global growth, also was making the oil market bullish. China's manufacturing activity surged to a 19-month high in December, British bank HSBC said Monday, a further sign of stronger growth in the world's second-largest economy. HSBC's purchasing managers' index (PMI) rose to 51.5, up from 50.5 in November, the first month of growth after a solid year of contraction.