KUALA LUMPUR: US crude fell more than $1 and Brent crude declined on Monday on concerns that US lawmakers will fail to agree on plans to reduce the nation's deficit.
Crude for January delivery on the New York Mercantile Exchange tumbled $1.31, or 1.3 percent, to $96.36 a barrel by 0840 GMT. The drop pared this month's gain to 3.4 percent after an 18 percent jump in October. Brent crude lost 52 cents, or 0.5 percent, to $107.04 a barrel.
A US congressional committee looked set to concede failure in its bid to cut at least $1.2 trillion from the nation's deficit over the next 10 years. While the group has until midnight on Wednesday to bridge deep partisan differences over taxes and spending, comments from congressional aides suggested the group would admit defeat on Monday.
"This might give Standard & Poor's an opportunity to cut ratings further," said Alvin Liew, a senior economist at UOB Bank Ltd. in Singapore.
"But due to safe-haven flows, yields on US Treasuries will stay low as investors see a lack of alternative investments," in assets such as commodities and equities, Liew said.
Investors concerned over the euro zone's slow pace of resolution of its two-year-old debt crisis have fled to US dollar holdings.
Brent's decline was limited by concern that tension over Iran's nuclear programme, and clashes in Egypt and Syria, may disrupt Middle Eastern output as demand for fuel rises ahead of the Northern Hemisphere winter.
"WTI remains a more actively-traded contract than Brent," said James Zhang, an analyst with Standard Bank in London. "When the oil market is swung by macro-events, the volatility in WTI tends to be higher than Brent."
In comments broadcast on Sunday, the energy minister of OPEC president Iran told Al Jazeera television his country could use oil as a political tool in the event of any future conflict over its nuclear programme.
The United States also plans to sanction Iran's petrochemical industry, sources familiar with the matter said last week, seeking to raise pressure on Tehran after fresh allegations it may be pursuing nuclear weapons.
"At this point, the geopolitics is more important to the market because it's happening at a time when fundamentals show it's a tight market amid the peak demand season," said Gordon Kwan, head of energy research at Mirae Asset Securities Ltd. in Hong Kong, who forecasts Brent will average $115 in 2012, assuming a lack of political tensions in the Middle East.
Syrian President Bashar al-Assad vowed on Sunday to continue a crackdown against protests demanding an end to more than four decades of rule by his family, a move likely to step up international pressure on the oil-producing nation and that may result in sanctions from other Arab states.
In Egypt, at least 12 people were killed in clashes between security forces and crowds protesting against the ruling military council in some of the worst violence since the overthrow of Hosni Mubarak.
The focus on Middle East production will continue until next month, when the Organization of Petroleum Exporting Countries (OPEC) will hold a Dec. 14 meeting after its last congress ended in acrimony when Iran and Venezuela, among others, blocked a Saudi Arabia-led push for an OPEC-wide output increase.
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