Oil follows stocks lower as US leaders meet for last-minute talks to avoid the 'fiscal cliff'

NEW YORK, N.Y. – The price of oil fell slightly Friday as the stock market drifted lower and efforts continued in Washington to strike a budget deal before the year-end deadline.

Benchmark West Texas Intermediate crude fell seven cents to finish at US$90.80 a barrel on the New York Mercantile Exchange.

In London, Brent crude, used to price international varieties, fell 18 cents to finish at US$110.62 a barrel on the ICE Futures exchange.

Hopes that a budget compromise might be reached were still alive as congressional leaders met with President Barack Obama at the White House.

The Republican-dominated House is set to meet Sunday and stay in session until Jan. 2, the day before the new Congress is sworn in. Without a budget deal, automatic tax hikes and government spending cuts could send the U.S. economy into recession, economists say.

Traders are also weighing rising energy supplies.

Phil Flynn of the Price Futures Group said a government report Friday showed U.S. oil production hit its highest point since March of 1993, at nearly seven million barrels a day.

The U.S. Energy Department’s Energy Information Administration said that U.S. crude supplies fell by 600,000 barrels last week but were still 13 per cent above year-ago levels. Analysts had expected a drop of two million barrels, according to Platts, the energy information arm of McGraw-Hill Cos.

Meanwhile, supplies at the crude delivery hub in Cushing, Okla., rose to an all-time high of 49.2 million barrels, more than 20 million barrels above year-ago levels.

Gasoline supplies increased by 3.8 million barrels, well above the 250,000-barrel increase that analysts forecast. Demand for gasoline at the wholesale level is nearly three per cent lower than a year ago.

Flynn also said traders were looking beyond the fiscal cliff to supply changes in the new year. Next month the pipeline flow between Cushing and Texas will increase. That means more buyers can access that oil, so Flynn expects higher prices for crude. And with much of the U.S. facing its real first cold snap of the winter — with the coldest temperatures in two years — Flynn said many traders expect more demand for petroleum products.

In other energy futures trading on the Nymex: wholesale gasoline fell two cents to end at US$2.80 a U.S. gallon (3.79 litres), heating oil fell three cents to finish at US$3.04 a gallon and natural gas rose six cents to end at US$3.47 per 1,000 cubic feet.