Oil prices drop as US talks stall

 / 20 Dec '12

The price of oil fell Thursday as fears rose that the US could head over the “fiscal cliff” if political leaders there fail to reach a budget deal to cut the government deficit before the end of the year.

Benchmark crude for February delivery lost 45 cents at midday Bangkok time to $89.53 per barrel in electronic trading on the New York Mercantile Exchange.

An oil rig is shown in this file photo. Credit: FREE IMAGES

The contract jumped $1.58, or about 1.8 percent, to finish at $89.51 per barrel in New York on Wednesday.

That was the biggest one-day price rise in a month.

Negotiations between President Barack Obama and Republican House Speaker John Boehner hit a snag Wednesday. The White House threatened to veto Boehner's alternative plan for averting automatic tax increases and government spending cuts that are set to take effect Jan. 1 if no deal is reached.

Without a deal, the hundreds of billions of dollars in spending cuts and tax hikes that will take effect could throw the US economy back into recession, analysts have said. Such a prospect would likely mean decreasing energy demand.

In other energy futures trading, Brent crude, used to price international varieties of oil, fell 35 cents to $110.01 per barrel in London.

On the New York Mercantile Exchange:

- Heating oil lost 0.1 cent to $3.02 a gallon.

- Natural gas rose 3 cents to $3.347 per 1,000 cubic feet.

- Wholesale gasoline fell marginally to $2.7327 a gallon. - Sapa-AP