Oil settles higher with tax-cut extension

[December 18, 2010]  NEW YORK (AP) -- Oil prices rose Friday after Congress sent a tax-cut extension package to President Barack Obama, bolstering hopes that demand for energy products will strengthen in the new year. The president signed the bill into law Friday afternoon.

Benchmark oil for January delivery rose 34 cents to settle at $88.02 a barrel on the New York Mercantile Exchange.

At the pump, unleaded regular gasoline was unchanged overnight at $2.984 a gallon. It's stayed at that level for most of the week. The price is about a penny more than a week ago and 39 cents more than a year ago, according to AAA, Wright Express and the Oil Price Information Service.

Although drivers in several states pay $3 a gallon or more, some analysts expect the national average to stay just below that through the end of the year, and then rise above that in the spring as the peak driving season approaches.

The tax cuts enacted when George W. Bush was president were scheduled to expire Jan. 1. The measure signed by President Obama extends them for two years. The bill also extends a series of business tax breaks intended to encourage investment.

The tax cuts add some momentum to the oil market, as traders hope they will help stimulate the economy and create more demand for gasoline, natural gas and heating oil.

The question remains whether the overall package will provide a long-term boost for the market, because an improving economy typically helps strengthen the dollar, PFGBest analyst Phil Flynn said.

"Whether or not it's going to really be the engine revving in the market, I'm a little ... apprehensive to say that's going to happen," Tradition Energy analyst Gene McGillian said.

Since oil and other commodities are priced in dollars, a stronger dollar makes them more expensive for buyers who use the euro and other currencies.

Persistently high unemployment, Europe's financial problems and the possibility that China will raise interest rates could also hurt oil demand,

In other Nymex trading in January contracts, heating oil fell 0.26 cent to settle at $2.4737 a gallon, gasoline futures added 1.35 cents to settle at $2.3178 a gallon and natural gas gained 1.8 cents to settle at $4.066 per 1,000 cubic feet.

In London, Brent crude rose 7 cents to settle at $91.67 a barrel on the ICE Futures exchange.

[Associated Press; By SANDY SHORE]

Associated Press writer Stephen Ohlemacher contributed to this report.

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