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Oil Futures Settle Higher as 'Cliff' Deal Seen Near

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NEW YORK--Crude-oil futures ended the last day of 2012 higher, buoyed by hopes that Washington will reach an agreement to stave off draconian spending cuts set to take effect on Jan. 1.

Light, sweet crude for February delivery settled $1.02, or 1%, higher at $91.82 a barrel on the New York Mercantile Exchange. Brent crude settled on the ICE futures exchange 49 cents, or 0.4%, higher at $111.11 a barrel.

Futures began the day lower after politicians failed to strike a deal over the weekend, but reversed course ahead of remarks by President Barack Obama, who said a deal to ward off the so-called fiscal cliff was "in sight."

A final compromise, however, has yet to materialize. Oil market participants have been following the talks because of concern that the spending cuts and tax hikes could impede the economic recovery in the U.S.--the world's biggest oil consumer--denting oil demand.

"The market's been riding up and down on the cliff," said Phil Flynn, analyst at Price Futures Group, a brokerage in Chicago. "When it looks like there's some kind of agreement, we go up."

The latest deal taking shape between the White House and Republicans in Congress would contain a tax hike for couples making more than $450,000 a year, raise taxes on large inheritances and extend unemployment benefits for a year.

Meanwhile, the oil futures market capped an eventful year Monday--though one that didn't necessarily translate into big price moves. Unlike 2011, which saw the oil market buffeted by global tensions and the Arab Spring, crude prices were largely shaped by macroeconomic concerns, such as Europe's fiscal crisis and high U.S. unemployment.

The two main benchmarks ended the year in opposite directions. The U.S. standard, Nymex crude, lost 7% on the year, posting its first annual loss since 2008, as surging domestic crude production overwhelmed weakening demand.

Meanwhile, its European counterpart, Brent crude, gained 3.4%. Prices across the Atlantic continue to get a lift from a combination of declining North Sea production and persistent concerns about Mideast supply.

January reformulated gasoline blendstock, or RBOB, settled up 1.21 cents, or 0.4%, at $2.8120 a gallon -- up 4.7% for 2012. January heating oil settled up 0.03 cent at $3.0451 a gallon, gaining 3.8% for the year.

Copyright (c) 2012 Dow Jones & Company, Inc.

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