Oil prices rallied on Tuesday as hopes grew of a US deal to avert a "fiscal cliff" of tax hikes and spending cuts in the United States -- the world's biggest consumer of crude -- analysts said.

New York's main contract, light sweet crude for delivery in January, climbed 79 cents to $87.99 a barrel.

Brent North Sea crude for February jumped $1.16 to $108.80 a barrel in late London deals.

"Crude oil prices rebounded on Tuesday amid hopes about the US budget details after the meeting between US President (Barack) Obama and House Speaker John Boehner provided some optimistic signs about the US economy, showing potential for a rebound in the US oil demand," said Sucden brokers analyst Myrto Sokou.

On Monday, Obama and top Republican Boehner made strides towards a deal to avert the year-end tax and spending crisis -- the so-called fiscal cliff -- that experts warn could spark a recession.

Obama and Boehner appeared to have reached a compromise on the income level to be affected by the White House push to raise taxes on the rich.

Elsewhere on Tuesday, a report said coal was set to surpass oil as the world's top fuel within a decade, driven by growth in emerging market giants China and India, with even Europe finding it hard to cut use despite pollution concerns.

"Thanks to abundant supplies and insatiable demand for power from emerging markets, coal met nearly half of the rise in global energy demand during the first decade of the 21st century," said Maria van der Hoeven, head of the International Energy Agency.

Economic growth is expected to push up further coal's share of the global energy mix, "and if no changes are made to current policies, coal will catch oil within a decade," she said in a statement.

The latest IEA projections see coal consumption nearly matching oil consumption in four years time, rising to 4.32 billion tonnes of oil equivalent in 2017 against 4.4 billion tonnes for oil.

That has consequences for climate change as coal produces far more carbon emissions responsible for global warming than other fuels.

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