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CALGARY, Alberta/LONDON - Oil prices climbed on Tuesday on hopes the United States will expand pandemic aid payments, a move that could spur fuel demand and stimulate economic growth.

U.S. West Texas Intermediate (WTI) crude futures settled 38 cents, or 0.8%, higher at $48.00 a barrel, while Brent crude futures settled up 23 cents, or 0.5%, at $51.09 a barrel.

"We are seeing strength in the oil market on the back of progress with the U.S. stimulus package," said Gary Cunningham, director of market research at Tradition Energy.

The Democratic-led U.S. House of Representatives voted to meet President Donald Trump's demand to increase direct COVID-19 aid payments to Americans hurting from the pandemic to $2,000.

It remained unclear whether U.S. Senate Republicans would also support the move. Majority Leader Mitch McConnell on Tuesday rejected calls by Democrats for the Senate to approve the increased stimulus aid by unanimous consent, although he said the Senate would examine the issue this week.

Concerns over coronavirus lockdowns capped oil market gains in the short-term.

A new variant of the virus in the United Kingdom has led to the reimposition of movement restrictions, hitting near-term demand and weighing on prices, while hospitalizations and infections have surged in parts of Europe and Africa.

Oil prices could gain strength as vaccination programs around the world pick up steam next year, said Tony Headrick, energy market analyst at CHS Hedging LLC.

"Optimism around vaccinations has the ability to overwhelm the concerns around coronavirus we are seeing," he added.

Traders were looking ahead to the latest U.S. oil inventory reports, expected to show crude stocks fell by 2.6 million barrels last week, while refined product stocks rose. The American Petroleum Institute's report was due at 4:30 p.m. EST (2130 GMT). [EIA/S]

A Jan. 4 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, also looms over the market.

OPEC+ is tapering record oil output cuts made this year to support the market. The group is set to boost output by 500,000 barrels per day (bpd) in January, and Russia supports another increase of the same amount in February.

(Additional reporting by Naveen Thukral in Singapore; Editing by Jan Harvey and David Gregorio)