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Oil Slips as 'Fiscal Cliff' Draws Near

Tyler Stableford | Image Bank | Getty Images

Brent crude futures edged lower on Monday in an abbreviated session before the Christmas holiday, with thin trading volume the main feature as oil prices felt pressure as U.S. budget talks stayed deadlocked.

U.S. crude oil fell 5 cents, or 0.06 percent, to settle at $88.61 a barrel, having traded from $88.20 to $88.86.

Brent crude settled 17 cents lower at $108.80 a barrel, taking its gains since the start of the year to less than $1.

With no apparent talks on Monday to avert the year-end budget deadline that will trigger harsh spending cuts and tax hikes, oil tracked equity markets slightly lower, with activity in a deep seasonal lull. Markets shut early on Monday and will be closed on Tuesday for Christmas Day.

Oil slumped on Friday after talks dissolved. President Barack Obama and Republican House Speaker John Boehner, the key negotiators, are out of town for Christmas. Congress returns from recess later this week, giving lawmakers only a few days to act before the Jan. 1 deadline.

Even as the cliff looms, Brent crude has yet to test the $106-$107 region that has provided key technical support since September, with many traders doubting that lawmakers will risk the fragile U.S. economy tipping again into recession.

"Although the magnitude of Friday's sharp selloff suggests that the market is pricing in a lack of fiscal cliff agreement by year's end, we still feel that some type of last-minute resolution will be forthcoming," Jim Ritterbusch, president of Chicago-based Ritterbusch & Associates, wrote in a note.

Some investors are now looking at a stop-gap that puts everything off for a while as the most promising alternative. Such a fix may help delay the spending cuts and tax hikes further into 2013 as well as work to address in a long-term way a budget that has generated deficits exceeding $1 trillion in each of the last four years.

Oil losses were restrained by tensions in the Middle East.

Dozens of people were killed in an air strike while queuing for bread in Syria's central Hama province on Sunday, activists said, with some residents giving an initial count of 90 dead.

Such a toll, if confirmed, would make it one of the deadliest air strikes in Syria's civil war.

Oil markets have also been on edge through most of the year as tensions between Iran and the West escalated over Tehran's disputed nuclear program.

Western sanctions on Iran's shipping and energy sectors caused serious problems for its oil industry earlier this year but Iran has mostly overcome those challenges, Oil Minister Rostam Qasemi was quoted as saying on Sunday.

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