Oil slips to one-week low on fears of U.S. budget crisis

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Brent crude oil futures fell to their lowest in a week on Wednesday on fears of a looming budget crisis in the United States, the world's top oil consumer.

Brent crude fell 66 cents to $109.21 per barrel by 1225 GMT, its lowest since Nov. 20. U.S. crude shed 60 cents to trade at $86.56 per barrel.

A failure by U.S. lawmakers to make progress in their budget talks - raising the spectre of automatic spending cuts and tax hikes - has pushed sensitive assets like oil and equities lower.

The U.S. Congress pushed toward a compromise on Tuesday on a deal to avert the "fiscal cliff" of tax increases and spending cuts due to take effect next year, but an agreement still appeared elusive.

"There is bearish sentiment caused by problems in U.S. negotiations, with the fiscal cliff still looming," said Filip Petersson, analyst at SEB in Stockholm.

Further depressing the outlook for oil demand, the Organization for Economic Cooperation and Development on Tuesday cut its global growth forecasts, warning the debt crisis in the recession-riddled euro zone was the greatest threat to the world economy.

"The OECD report means there's a very bearish picture, although relatively firm recent data from the U.S. and China is preventing bigger retreats," Petersson said.

MIDDLE EAST SUPPORT

The mounting political crisis in Egypt and escalating violence in Syria has led to worries about potential disruption to supplies in the Middle East, helping prevent a larger decline in oil prices.

Hundreds of demonstrators were in Cairo's Tahrir Square for a sixth day on Wednesday, demanding that President Mohamed Mursi rescind a decree they say gives him dictatorial powers, while two of Egypt's top courts stopped work in protest.

Five months into the Islamist leader's term, and in scenes reminiscent of the popular uprising that unseated predecessor Hosni Mubarak last year, police fired teargas at stone-throwers following protests by tens of thousands on Tuesday against the declaration that expanded Mursi's powers and put his decisions beyond legal challenge.

"The Middle East looks set to be a major source of uncertainty in the New Year. That provides a key support for oil prices and could well sabotage even the most persuasive set of bearish physical supply/demand figures," said David Hufton, managing director at PVM in a note.

Investors are now eyeing data on U.S. crude stockpiles from the U.S. Energy Information Administration later in the day for hints on demand from the key consumer.

Data released by the American Petroleum Institute late on Tuesday showed crude stocks rose by 2 million barrels for the week ended Nov. 23. Gasoline stocks rose 2.3 million barrels and distillate stocks rose 268,000 barrels, the API said.

Crude stocks were expected to be up only 300,000 barrels and gasoline up 900,000 barrels, a Reuters survey showed. (Additional reporting by Luke Pachymuthu in Singapore; editing by James Jukwey)



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