Crude oil prices advanced from a two-week low Monday, after President Barack Obama said congressional leaders approved a deal to raise America’s debt ceiling, stoking speculation the world’s biggest crude user will avoid a default.

Crude for September delivery rose from as much as $1.85 to $97.55 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.73 at 1:05 p.m. London time. The contract dropped $1.74 to $95.70 on July 29, the lowest settlement since July 14. Prices gained 0.3 per cent last month and are 19 per cent higher the past year.

Brent for September settlement climbed $1.74, or 1.5 per cent, to $118.48 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $21.74 to New York futures, compared with a record close of $22.63 on July 14.

Futures surged as much as 1.9 per cent after Obama spoke from the White House and Senate Majority Leader Harry Reid endorsed the emerging accord between Republican leaders and the administration. The U.S. won’t default on its obligations, Senate Minority Leader Mitch McConnell said. A Labour Department report on August 5 may show July payrolls rose by 90,000 workers.

“It’s a kind of relief for the market,” Thina Saltvedt, an analyst at Nordea Bank AB, said in a phone interview from Oslo. “Risk appetite is again increasing and investors are moving into more risky assets such as oil and commodities.”

“Brent is reacting to the tension in the Middle East escalating once again,” Ole Hansen, senior manager of trading advisory team at Saxo Bank A/S, said from Copenhagen.

Congressional leaders are sifting through the details of the tentative bipartisan agreement to raise the debt ceiling, preparing to sell the deal to skeptical Republicans and Democrats ahead of possible votes yesterday.

The deal would raise the $14.3 trillion debt ceiling through 2012, cut spending by about $1 trillion and call for enactment of a law shaving another $1.5 trillion from long-term debt by 2021- or institute punishing reductions across all government areas, including Medicare and defense programs, according to congressional officials.

“Prices moved sharply higher because of Obama’s speech,” said Ken Hasegawa, a commodity-derivatives sales manager at broker Newedge Group in Tokyo, who predicts oil will trade from $95 to $105 a barrel in the short term.

“This market can avoid a collapse. The recovery of the global economy and increasing demand for winter fuels will push it higher.”

A Chinese manufacturing index was higher than economists estimated in July, signaling the world’s second-biggest economy is withstanding interest-rate increases and tighter credit.

The Purchasing Managers’ Index was at 50.7 for July compared with 50.9 in June, the China Federation of Logistics and Purchasing said in a statement yesterday. That was more than every forecast in a Bloomberg News survey of 13 economists. The median estimate was for a reading of 50.2.

Oil in New York also rose as hedge funds increased bullish bets on gasoline for a fifth consecutive week, pushing futures to the highest since May.