Oil prices rise on better economic prospects

Oil prices resumed their upward climb Tuesday against a backdrop of solid economic indicators.

A barrel of US benchmark West Texas Intermediate settled at $96.64 a barrel, up 47 cents from Monday's close, on the New York Mercantile Exchange. US oil prices have gained nearly 11 percent since December 17.

The European oil benchmark, Brent futures, gained 92 cents to settle at $116.52 a barrel.

While oil prices dropped Monday along with equity markets, the commodity jumped again Tuesday as equity markets reported new gains. Analysts attributed the rise to solid economic data in both the US and Europe.

"The market continues to be supported by the economic headlines out of the US, Europe and China, that continue to support the crude oil prices as well as the product prices," said independent analyst Andy Lipow.

Analysts pointed to a solid result in the Institute for Supply Management's January rating of the US services sector which, while lower than the December level, met expectations.

Analysts also eyed results from a European purchasing managers index, which suggested the continent was poised for a recovery. According to the data firm Markit, the indicator reached its highest level in 10 months.

"We've been seeing oil prices go up for the better part of a month" on stronger sentiment, said Gene McGillian, a broker and analyst with Tradition Energy, an over-the-counter brokerage firm.

Oil prices also received a lift due to shifts in currency valuations. The euro was up 0.6 percent compared with the dollar. When the dollar is weak, oil, which is traded in dollars, becomes more affordable for purchasers trading in other currencies.

Oil prices were also buoyed by a revival of geopolitical concerns on news that Israel is deploying a defense system in the north, said David Bouckhout, an analyst at TD Securities.

"The market is always worrying that any increase in the violence in the Middle East will lead to a supply disruption," said Lipow. "The biggest concern in the Middle East is the violence growing near the Strait of Hormuz."