Crude oil rose by more than $1 to reach $111 per barrel on Thursday on optimism that U.S. lawmakers would reach a deal on fiscal policy and as mounting tension in the Middle East intensified supply concerns.
Brent crude was up $1.24 at $110.75 by 1505 GMT, having hit a session high of $111.00, and rose above its 50-day and 100-day moving averages, a bullish signal.
U.S. crude gained $2.04 to $88.53 a barrel, having come within 1 cent of its 50-day moving average.
Demand sensitive assets were boosted on improved sentiment about a deal on U.S. budget talks.
President Barack Obama and the top Republican in Congress, House Speaker John Boehner, both expressed hopes on Wednesday that a deal could be reached, though other lawmakers have said any solution remains some way off.
The United States is the world's biggest crude oil consumer.
The U.S. economy grew faster than initially thought at 2.7 percent in the third quarter as restocking by businesses provided a big boost, although forecasters had predicted a rise of 2.8 percent.
"The upward revision in GDP which was non-negligible is certainly helping market sentiment to push higher," said Harry Tchilinguirian, analyst at BNP Paribas.
Also boosting confidence in the economy, contracts to buy previously owned U.S. homes rose more than expected in October, a sign the housing market recovery advanced into the fourth quarter.
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 was due to address the nation at 1700 GMT, 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.
Yemen offered a $25,000 reward on Thursday for help in catching the killers of a Saudi Arabian diplomat, a day after he was gunned down in an attack that security authorities blamed on al Qaeda, which added to jitters about the situation in the Middle East.
The U.N. nuclear agency made no progress in a year-long push to find out if Iran worked on developing an atomic bomb, its chief said on Thursday, calling for urgent efforts to end Tehran's standoff with the West.
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.
OPEC, PRICE POLL
High oil stockpiles, slowing demand growth and a fragile world economy would usually give OPEC reason to consider supply cuts when it meets next month, especially when some think it may be pumping more than enough to meet demand.
A fall in U.S. 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.
U.S. gasoline stockpiles rose a sharp 3.87 million barrels to 204.26 million barrels, compared with expectations for a smaller 900,0000 barrel build.
Oil prices are expected to fall slightly over the next year as high production feeds softening demand at a time of slowing global economic growth, a Reuters poll shows.
Reuters' monthly oil price survey of 29 analysts forecasts North Sea Brent crude oil will average $107.50 per barrel in 2013, down $1.30 from the forecast in the October poll and compared with an average of around $111.90 so far in 2012.
"Our overriding outlook continues to foresee slowing global growth (which) consequently should persist in undermining (oil)demand," Gain Capital Group analyst Chris Tevere said.