Brent Settles Below $109 on 'Cliff' Jitters

Oil rigs in the South China Sea.
Paul & Paveena McKenzie | Oxford Scientific | Getty Images
Oil rigs in the South China Sea.

Brent crude futures fell more than one percent on Friday, as faltering efforts to negotiate a U.S. budget reinforced fears a deal would not get done to avoid mandated tax hikes and spending cuts that could curb the economy and demand for petroleum.

Brent February crude fell $1.23, or 1.12 percent, to settle at $108.97 a barrel, having traded from $108.66 to $110.28.

For the week, front-month Brent ended down 18 cents, or 0.16 percent.

The Republicans late on Thursday abandoned their own proposed solution, championed by House of Representatives Speaker John Boehner, to head off $600 billion worth of tax increases and spending cuts that investors fear could push the U.S.economy into recession next year.

"The petroleum markets are coming under selling pressure on equity market weakness and U.S. dollar strength after a 'Plan B' fiscal bill failed to garner enough support to pass the U.S. House of Representatives," Tim Evans, energy futures specialist at Citi Futures and OTC Clearing, said in an email to clients.

Global stock markets fell on Friday, while the euro slipped and the dollar strengthened,on pressure from the latest setback in budget talks and evidence of Europe's ongoing economic woes.

U.S. crude remained on pace to post a second consecutive weekly gain, as Middle East instability and expectations for revived growth in China provide support to oil prices.

February crude fell $1.36 to $108.84 a barrel. Front-month Brent prices need to close above $109.15, settlement of the expiring January contract last Friday, to prevent posting a weekly loss.

U.S. February crude was down $1.75 at $88.38 a barrel, having traded from $87.96 to $90.07.

Sharp price swings have been aided by thin volumes ahead of end-of-year holiday's next week, traders and brokers said. Turnover was 50 percent below the 30-day averages for Brent and U.S. crude futures at midday in New York.

U.S. RBOB gasoline and heating oil futures also fell, with heating oil feeling pressure from seasonally mild weather.

A drop in consumer sentiment in December, as the budget talks dragged on, added pressure on oil futures on Friday.

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment tumbled to 72.9 from 82.7 in November, worse than forecasts for a reading of 74.7 and the lowest since July.

Analysts are more positive on the prospects for the oil market in the New Year,following Chinese data showing higher demand and on expectations of slightly faster global economic growth.

World oil demand growth looks set to rise in 2013 due to a recovery in the U.S. economy, according to many forecasters.

The U.S.economy grew faster than previously thought, at a 3.1 percent annual rate in the third quarter, the Commerce Department said. It was the fastest pace since late 2011 and more than double the second quarter's 1.3 percent rate.