Oil futures rose modestly on Tuesday after OPEC said its members pumped less oil last month and as a weaker U.S. currency helped to firm dollar-denominated commodity prices.
Brent crude rose for a second day and U.S. crude rose for the first time in six trading sessions.
OPEC ministers meet in Vienna on Wednesday. Most analysts do not expect the oil exporting countries to change their output quotas from a combined 30 million barrels per day.
While they produced above quota levels, OPEC states pumped less oil last month, down 210,000 barrels per day to 30.78 million barrels per day, the group said in a monthly report on Tuesday.
The dollar index weakened by more than 0.3 percent as the euro rose and investors awaited a statement following the U.S. Federal Reserve's two-day policy meeting, with some speculation the Fed could signal more aggressive quantitative easing on Wednesday.
"We've seen some support from a weaker dollar," Marc Ground of Standard Bank commodities research said in a note.
Brent January crude rose 68 cents to settle at $108.01 a barrel, while U.S. crude futures rose 23 cents to settle at $85.79, increasing Brent's premium to U.S. futures to more than $22 a barrel.
Even as OPEC reported that it produced less oil last month, a monthly short-term energy outlook from the U.S. Energy Information Administration on Tuesday forecast that U.S. oil production would expand at a faster-than-expected pace through 2013.
The EIA report forecast that U.S. oil output would rise next year to the highest levels since 1992, gaining by some 700,000 barrels per day to 7.1 million barrels a day, a larger jump than it had previously predicted.
Data on Tuesday also showed the U.S. trade deficit widened in October as exports suffered the biggest drop in nearly four years, indicating slowing global demand was spilling over into the lackluster U.S. economy and helping to hem in oil prices.
Crude got a boost from news of a sharp rise in German analyst and investor sentiment so far in December. In a study from Manheim-based think tank ZEW, sentiment turned positive for the first time since May in the euro zone's largest economy.
The U.S. Federal Open Market Committee kicked off a two-day policy meeting against the backdrop of negotiations between the White House and Republican leaders of the House of Representatives on a budget deal to avoid looming mandated tax hikes and spending cuts, the so-called fiscal cliff.
Investors fear that if the tax increases and spending cuts now set for 2013 are not averted, the U.S. economy could be pushed back into recession.
On Tuesday, Republican House Speaker John Boehner said he was "optimistic" a deal could be reached, though he reported no concrete progress in the talks.
While noting concerns about oversupply, OPEC said its production fell last month. Top exporter Saudi Arabia told OPEC it cut output by 230,000 bpd to 9.49 million bpd.
OPEC left its 2013 world demand growth forecast unchanged at 770,000 bpd, while the U.S. Energy Information Administration (EIA), in a separate report on Tuesday, raised its 2013 expectations by 70,000 bpd to 960,000 bpd.
Traders will be monitoring any change in OPEC production targets on Wednesday, the same day the U.S. EIA will release its weekly report on domestic oil inventories.
The industry group American Petroleum Institute will release its own inventory data first, on Tuesday at 4:30 p.m. EST (2130 GMT).
U.S. crude oil stockpiles are expected to have fallen last week, while distillate and gasoline stockpiles increased, a Reuters survey of analysts showed. (Additional reporting by Shadia Nasralla in London and Florence Tan in Singapore; Editing by Marguerita Choy, David Gregorio and Jim Marshall)