Oil prices drop to $89 a barrel Friday with no fiscal cliff deal

Mark Ralston/AFP/Getty Images

Oil pumps in operation at an oilfield near central Los Angeles on February 02, 2011. Oil prices fell to near $89 a barrel Friday as doubts intensified over whether political leaders in Washington would be able to reach a deal on the budget before a package of tax hikes and spending cuts automatically kicks in with the new year.

Oil prices fell to near $89 a barrel Friday as doubts intensified over whether political leaders in Washington would be able to reach a deal on the budget before a package of tax hikes and spending cuts automatically kicks in with the new year.

By early afternoon in Europe, benchmark crude for February delivery was down $1.08 to $89.05 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 15 cents to end at $90.13 per barrel Thursday on the Nymex.

In London, Brent crude, used to price international varieties of oil, was down 50 cents to $109.52 a barrel.

Figures Thursday from the U.S. Commerce Department showing the world's largest economy grew by more than previously thought in the third quarter have had little impact in light of worries over the U.S. budget discussions.

"That matters little in a market that is maintained hostage to the U.S. political gesticulations," said analyst Olivier Jakob of Petromatrix in Switzerland.

If the Republicans and Democrats don't work out a compromise before the end of the month, the U.S. could go over the "fiscal cliff," a reference to hundreds of billions of dollars in big tax increases and government spending cuts that take effect if a budget deal is not reached. Some economists fear that would push the U.S. back into recession, a prospect 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 increases from taking effect on Jan. 1 on all income under $1 million. Obama is seeking a level of $400,000.

In other energy futures trading on the New York Mercantile Exchange:

- Natural gas added 3.2 cents to $3.494 per 1,000 cubic feet.

- Heating oil fell 1.84 cents to $3.03021 a gallon.

- Wholesale gasoline was down 1.74 cents to $2.7226 a gallon.