Oil Prices Rise on Positive Economic News

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"Demand es expected to improve for oil and gas in the coming months."

Crude oil prices responded to encouraging economic news and climbed higher on Tuesday.

Benchmark oil recovered from early losses to rise $0.14 to $88.75 a barrel in midday trading on the New York Mercantile Exchange.

Meanwhile, the national average for unleaded gasoline hovered around $2.98 a gallon on Tuesday, according to AAA, Wright Express and the Oil Price Information Service. That's up about$0.0 2 higher than a week ago and nearly $0.38 more than a year ago. Some analysts think the national average may reach $3 a gallon by Christmas, although drivers in some areas pay more than that already.

The economic news on Tuesday pointed to improving demand for oil and gas in the coming months. The Commerce Department said retail sales rose for a fifth straight month in November. A Business Roundtable survey found 45% of executives polled expect their companies to add more workers and spend more in the next six months. And the Labor Department said wholesale prices rose in November.

While the economic data was positive, energy traders are still concerned about inflation and want more clarity on what the government will do to keep the economic recovery going, according to PFGBest analyst Phil Flynn.

The Fed holds its last scheduled meeting of the year on Tuesday. While no major policy announcements are expected, Fed policymakers will likely take a look at the effectiveness of the $600 billion bond-buying program they put in place and the effect of tax cut extensions pending in Congress. The Fed's decision to buy government bonds was intended to encourage Americans to spend more which, in turn, would boost the economy. Since the program was announced in early November, oil prices have risen an average of 4.6% and last week hit a two-year high of $90 a barrel.

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