UPDATE 6-Oil pulls back on U.S. budget impasse worries
* Senate's Reid says U.S. looks like headed over fiscal cliff
* Trading volume continues to be low
* Coming up: API oil stocks data 4:30 p.m. EST Thursday
(Recasts with updated prices, market activity; changes byline and dateline, pvs LONDON)
NEW YORK, Dec 27 (Reuters) - Oil prices eased in choppy trading on Thursday as unresolved U.S. budget talks left open the possibility that looming mandated tax hikes and spending cuts could push the economy of the No. 1 oil consuming nation into recession.
Brent and U.S. crude remained on track for weekly gains, but while Brent neared a yearly gain of more than 2 percent, U.S. crude was on pace to post a yearly loss of around 8 percent on accelerated domestic crude oil production.
Oil and U.S. equities prices on Wall Street felt pressure from comments by Senate Majority Leader Harry Reid criticizing Republicans in Congress for refusing to go along with any tax increases as part of a U.S. "fiscal cliff" remedy.
"It looks like that is where we're headed," Reid, a Democrat, said of the likelihood of the U.S. economy going over the "fiscal cliff" - with tax increases on most Americans and automatic spending cuts starting in January.
U.S. President Barack Obama is travelling back to Washington on Thursday, cutting short his holiday to try to get a budget deal with Republican lawmakers.
Brent February fell 67 cents to $110.40 a barrel by 11:16 a.m. EST (1616 GMT), after reaching $111.33.
U.S. February crude was down 23 cents at $90.75 a barrel, after reaching $91.44 during the session, highest since Oct. 19.
Total Brent and U.S. crude trading volumes were more than 65 percent below their 30-day averages.
U.S. January refined products futures were mixed in choppy trading, with heating oil finding seasonal support and RBOB gasoline easing.
Brokers said few investors wished to make large bets on the direction of oil prices until the U.S. budget talks were resolved or during the holiday period characterized by low trading volumes.
"We continue to find it difficult to have a directional position in a low-volume environment in front of the fiscal cliff uncertainty," said Olivier Jacob, an energy market consultant at Petromatrix in Zug, Switzerland.
Bank of America-Merrill Lynch analysts said in a report a U.S. budget deal might only come at the last moment: "While markets have vacillated between optimism and pessimism over the prospects for a compromise, we expect a deal only at the last minute, with lots of decisions delayed into the New Year and austerity of roughly 2 percent of GDP."
Oil rose in early trading on Thursday as Japanese stocks hit an 18-month high after the country's new prime minister said beating deflation and weakening the yen were his top priorities.
Japan's government will pursue bold monetary policy, flexible fiscal policy and a growth strategy to encourage private investment, Prime Minister Shinzo Abe said.
Concerns about potential supply disruptions in the Middle East remained supportive to oil prices and were reinforced after United Arab Emirates security forces arrested a cell of UAE and Saudi Arabian citizens which the UAE said was planning attacks in both countries and other states.
Also supporting prices were expectations that U.S. crude stockpiles may have decreased last week as refiners kept inventories low for year-end tax purposes.
Crude stocks were expected to be down by 1.9 million barrels in the week to Dec. 21, a Reuters analyst poll on Wednesday showed.
Inventory data from the American Petroleum Institute will be released on Thursday, while the U.S. Energy Information Administration's report will arrive on Friday. Both reports are delayed because of the Christmas holiday.
(Additional reporting by Christopher Johnson in London and Ramya Venugopal in Singapore; Editing by Marguerita Choy)