LONDON – Brent crude oil futures fell to their lowest in more than a week on Wednesday on fears of a looming budget crisis in the United States, the world's top oil consumer.
Brent crude fell $1.15 to $108.72 per barrel by 1412 GMT. U.S. crude shed $1.56 to trade at $85.62 per barrel.
A failure by U.S. lawmakers to make progress in their budget talks - raising the spectre of automatic spending cuts and tax hikes - has pushed sensitive assets like oil and equities lower.
The U.S. Congress pushed toward a compromise on Tuesday on a deal to avert the "fiscal cliff" of tax increases and spending cuts due to take effect next year, but an agreement still appeared elusive.
"There is bearish sentiment caused by problems in U.S. negotiations, with the fiscal cliff still looming," said Filip Petersson, analyst at SEB in Stockholm.
MIDDLE EAST SUPPORT
The mounting political crisis in Egypt and escalating violence in Syria has led to worries about potential disruption to supplies in the Middle East, helping prevent a larger decline in oil prices.
Hundreds of demonstrators were in Cairo's Tahrir Square for a sixth day on Wednesday, demanding President Mohamed Mursi rescind a decree they say gives him dictatorial powers, while two of Egypt's top courts stopped work in protest.
Although Egypt does not produce much oil, there are fears that an escalation could lead to contagion in the region, a key supplier of oil to the West.
Highlighting the potential for further supply worries, the Muslim Brotherhood and hardline Salafi parties will hold protests across Egypt on Saturday in support of President Mursi.
"The Middle East looks set to be a major source of uncertainty in the New Year. That provides a key support for oil prices and could well sabotage even the most persuasive set of bearish physical supply/demand figures," said David Hufton, managing director at PVM in a note.
Investors are now eyeing data on U.S. crude stockpiles from the U.S. Energy Information Administration later in the day for hints on demand from the key consumer.
Data released by the American Petroleum Institute late on Tuesday showed crude stocks rose by 2 million barrels for the week ended Nov. 23. Gasoline stocks rose 2.3 million barrels and distillate stocks rose 268,000 barrels, the API said.
Crude stocks were expected to be up only 300,000 barrels and gasoline up 900,000 barrels, a Reuters survey showed. (Additional reporting by Luke Pachymuthu in Singapore; editing by James Jukwey)