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Crude Oil Bolstered by Weaker Dollar; Capped by Debt Ceiling Fears

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U.S. crude futures moved 0.6% higher Monday, getting a boost from a weaker dollar.

The euro jumped to an 11-month high against the U.S. dollar, pulling oil prices higher. Dollar-denominated crude futures become more attractive to buyers in other currencies when the U.S. currency loses value.

"The euro's strength comes even in the face of poor industrial data out of Europe, and that's lending support to crude prices today," said Matt Smith, energy analyst at Summit Energy. "There are growing expectations that the euro-zone debt crisis is a thing of last year."

Light, sweet crude for February delivery settled 58 cents, or 0.6%, higher at $94.14 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange for February delivery settled $1.24, or 1.1%, higher at $111.88 a barrel.

However, oil's gains were limited by uncertainty over the U.S. debt ceiling. President Barack Obama reiterated in a press conference Monday that he wouldn't negotiate with Republicans over the government's borrowing limit, urging Congress to raise the federal debt ceiling so that government bills can be paid.

If Republicans indicate they will continue to use the debt ceiling as leverage to force additional government spending cuts, "you could see crude oil sell off pretty handily," said Mark Waggoner, president of Excel Futures in Bend, Ore.

"Everybody's going to be focused on the debt ceiling and what's going to happen with the spending cuts more than anything right now," he said, adding a political standoff could sour investors' outlook on the U.S. economy.

The dollar's decline began earlier in the day. Chicago Fed President Charles Evans said that conditions to raise interest rates could be in place by 2015. This tempered speculation that the Fed would end its quantitative easing program earlier than expected. Minutes from the Fed's December meeting indicated that "several" Fed members thought it would be appropriate to reduce the program, designed to stimulate the U.S. economy by flooding it with dollars.

Any stimulus is expected to raise demand for raw materials like crude and oil products--and the depreciation of the U.S. dollar helps oil prices.

The euro also was helped by expectations that the European Central Bank would refrain from cutting interest rates, despite the ongoing debt crisis in the region.

Meanwhile, heating oil outpaced gains in crude and gasoline. The U.S. East Coast is expected to see colder weather in the next few days, which will raise demand for heating oil, analysts say.

Front-month February reformulated gasoline blendstock, or RBOB, settled 1.46 cents higher at $2.7541 a gallon. February heating oil settled 5.4 cents higher at $3.0625 a gallon.

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

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