Oil prices rose to near $97 a barrel Monday after U.S. lawmakers struck a last-minute agreement to raise the government's debt limit, avoiding a default.
By early afternoon in Europe, benchmark oil for September delivery was up $1.12 to $96.82 a barrel in electronic trading on the New York Mercantile Exchange. Crude dropped $1.74 to settle at $95.70 on Friday.
In London, Brent crude was up $2.05 at $118.79 per barrel on the ICE Futures exchange.
President Barack Obama announced late Sunday that the deal agreed to by Republican and Democratic leaders would cut more than $2 trillion of federal spending over the next decade. Congress is expected to vote on the bill Monday.
Oil prices sputtered down from near $100 last week amid investor concern a U.S. debt default could trigger a recession and hurt crude demand.
Crude also dropped last week because of evidence U.S. economic growth is slowing. The U.S. Commerce Department said Friday that the world's biggest economy grew at an annual rate of only 1.3 percent in the second quarter.
"Friday's GDP data could charitably be described as shocking," energy consultant The Schork Group said in a report. "The U.S. economy is stalling."
The budget cuts connected to the raised debt limit should further restrain economic growth.
"The fact that the underlying picture is far from rosy is made quite clear by the latest US GDP figures … with private consumption proving particularly disappointing," said analysts at Commerzbank in Frankfurt. "If far-reaching spending cuts are in fact now implemented in the wake of the compromise, demand will no doubt continue to recede."
Two reports released Monday showed manufacturing slowed in July in China, the world's second-largest crude consumer.
Investors will be closely watching the latest data about U.S. manufacturing, auto sales and unemployment this week.
Meanwhile, a crackdown in Syria targeting protesters against the regime of President Bashar Assad was helping to keep a floor under oil prices.
"The geopolitical risk premium … may also help drive prices upward given growing unrest in Syria," said JBC Energy in Vienna. "Early Friday, saboteurs deliberately targeted oil infrastructure and blew up a portion of a crude oil pipeline linking the Homs refinery with the Mediterranean export terminal of Tartous."
In other Nymex trading, heating oil rose 5.73 cents to $3.1567 a gallon while gasoline gained 4.38 cents at $3.1017 a gallon. Natural gas futures added 3.1 cents at $4.176 per 1,000 cubic feet.