Oil fluctuated as German investor confidence jumped to a seven-month high in December and as OPEC members gathered in Vienna to discuss output levels.

Prices swung between gains and losses as confidence in Germany, the biggest oil user in the European Union, rose more than economists forecast on speculation the economy will gather momentum next year. The Organization of Petroleum Exporting Countries will probably leave its production quota unchanged when oil ministers meet tomorrow, a Bloomberg survey showed.

"The German confidence is one of the reasons supporting the market," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "We do have an OPEC meeting and we are kind of in a holding pattern right now."

Crude for January delivery rose 5 cents to $US85.61 a barrel at 1:26 p.m. on the New York Mercantile Exchange. The contract dropped to $US85.56 yesterday, the lowest close since Nov. 15. Prices are down 13 per cent this year and are headed for the first annual decrease since 2008.

Brent for January settlement on the London-based ICE Futures Europe exchange gained 42 cents, or 0.4 per cent, to $US107.75 a barrel.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 6.9 from minus 15.7 in November. Economists forecast a gain to minus 11.5, according to the median of 38 estimates in a Bloomberg survey.

German Economy

ZEW's gauge of the current economic situation rose to 5.7 from 5.4 in November.

"The German confidence reduced some concern about the European economy," said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. "No one is making big bets in this market before the OPEC meeting."

The euro gained as much as 0.5 per cent against the dollar on the German sentiment report. A stronger euro and weaker dollar increase dollar-denominated oil's appeal as an investment alternative.

"The improving German investor confidence put some support in the market," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "The market is keeping an eye on tomorrow's OPEC meeting to see if there is anything unexpected coming out of it."

OPEC will probably maintain its production quota at 30 million barrels a day of oil, according to the Bloomberg survey.

Mohamed al-Hamli, the oil minister from the United Arab Emirates, said in Vienna today that there's no need for OPEC to do anything as long as there is demand.

OPEC Output

OPEC crude output tumbled to the lowest level in 11 months in November as Saudi Arabia, the group's biggest producer, pumped the least in 13 months, according to revised data in an e-mailed report from the group.

Supply from the 12-member organization, which pumps about 40 per cent of the world's crude, dropped by 0.7 per cent to 30.78 million barrels a day last month, the lowest level since December 2011. That exceeds by 1.03 million barrels the amount of OPEC crude that will be required by world markets in 2013, the report showed.

"We still have enough oil," Zahir said.

The Energy Department will probably say tomorrow that US gasoline inventories increased 2 million barrels in the week ended Dec. 7, according to a Bloomberg survey. Stockpiles jumped 7.86 million the previous week to 212.1 million as demand weakened.

Gasoline Supply

"The build in gasoline is really keeping this market down," Baruch said. "People are really fearful of demand."

The Energy Department raised its crude-oil price projection for 2013 in its monthly Short-Term Energy Outlook today. West Texas Intermediate oil will average $US88.38 a barrel next year, up from the $US88.29 forecast last month, the Energy Information Administration, the department's statistical arm, said. Brent will average $US103.75, up from $US103.38 last month.

Investors also watched the ongoing budget talks in Washington. President Barack Obama and House Speaker John Boehner attempt to make a deal on fiscal policy, while Federal Reserve officials were due to begin a two-day meeting today that will be followed by updated projections on the economy and monetary policy.

US lawmakers need to agree on a budget to prevent more than $US600 billion of automatic tax increases and spending cuts from coming into effect next year.

BLOOMBERG