Oil extended its rise above $87 a barrel amid optimism US leaders can reach a budget deal and avoid automatic tax and spending cuts that might dampen growth and crimp demand for crude.
Benchmark oil for January delivery was up 44 cents at $87.65 a barrel in electronic trading on the New York Mercantile Exchange.
The contract rose 47 cents to close at $87.20 in New York last night.
Brent crude, which is used to price international varieties of oil, was up 56 cents to $108.20 on the ICE Futures Exchange in London.
Optimism that the so called "fiscal cliff" will be avoided has increased as President Barack Obama backs away from what had once been ironclad positions.
A new proposal handed to House Speaker John Boehner last night drops Obama's long-held insistence that taxes rise on individuals earning more than $200,000 and families making more than $250,000.
Obama is now offering a new threshold of $400,000 and lowering his 10-year tax revenue goals from the $1.6 trillion he had argued for a few weeks ago.
The meeting came after Boehner, who is fronting negotiations for the Republican-controlled Congress, on Friday offered to raise taxes on some wealthy earners, but only if Obama agrees to cuts in benefit programmes.
