Oil down more than $1.50 as US budget talks stall days before 'fiscal cliff'

NEW YORK, N.Y. – Oil prices fell sharply Friday as doubts intensified over whether political leaders in Washington can reach a budget deal before a package of tax hikes and spending cuts automatically kicks in with the new year.

In morning trading, benchmark West Texas Intermediate crude for February delivery fell $1.54 to US$88.59 a barrel in New York. It had been as low as US$87.96 at one point.

In London, Brent crude, used to price international varieties of oil, fell 82 cents to US$109.38 a barrel.

If Republicans and Democrats don’t work out a compromise in the next 10 days, the U.S. could go over the so-called “fiscal cliff,” a reference to hundreds of billions of dollars in tax increases and government spending cuts that take effect if a budget deal is not reached.

Many economists fear that would eventually push the U.S. back into recession, a situation that would likely mean less energy demand.

Late Thursday House Republicans abruptly put off a vote on an alternative plan offered by House Speaker John Boehner that would prevent scheduled tax increases from taking effect on Jan. 1 on all income under $1 million. President Barack Obama wants the cutoff point to be $400,000.

On Friday morning, Boehner signalled talks are still open.

In other energy futures trading on the New York Mercantile Exchange, natural gas rose two cents to US$3.48 per 1,000 cubic feet, heating oil fell two cents to US$3.02 a U.S. gallon (3.79 litres) and wholesale gasoline fell two cents to US$2.73 a gallon.