Oil extends rise above $87 a barrel as gap in US budget negotiations narrows

Oil extended its rise above $87 a barrel on Tuesday amid optimism American 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 at late afternoon Bangkok time in electronic trading on the New York Mercantile Exchange. The contract rose 47 cents to close at $87.20 on Monday in New York.

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 on Monday 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 programs.

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.

In other energy futures trading on the Nymex:

— Heating oil rose 1.5 cents to $2.969 a gallon.

— Natural gas fell 0.3 cent to $3.355 per 1,000 cubic feet.

— Wholesale gasoline added 1.6 cents to $2.665 a gallon.