Oil lower as US leaders meet for last-minute talks to avoid '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.

In afternoon trading, benchmark West Texas Intermediate crude was down 21 cents at US$90.66 a barrel in New York. In London, Brent crude, used to price international varieties of oil, fell 47 cents to $110.33 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 that 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 Energy Department’s Energy Information Administration said U.S. crude supplies fell by 600,000 barrels last week but are 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.

Gasoline supplies rose 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 between Cushing, Okla., and Texas will increase flow. That means more buyers can access that oil.

Flynn expects that will drive up the price. And with much of the U.S. facing its real first cold snap of the winter, Flynn said many traders also expect more demand for petroleum products.

In other energy futures trading on the New York Mercantile Exchange: wholesale gasoline was down three cents to US$2.76 a U.S. gallon (3.79 litres), heating oil fell three cents to US$3.02 a gallon and natural gas rose four cents to US$3.47 per 1,000 cubic feet.