New York's main contract, West Texas Intermediate light sweet crude for September delivery, sank $1.08 to $98.79 a barrel, and Brent North Sea crude -- also for September delivery -- dropped 60 cents to $118.07.

"The uncertainty over the US debt saga has created concerns for the oil market," said Victor Shum, an analyst with energy consultancy Purvin and Gertz.

"If it defaults, it impacts potentially economic growth in the US and so it's a sort of a domino impact," he told AFP.

The White House and top lawmakers scrambled Sunday for a deal to stop the world's richest country from an unthinkable and ruinous default on its debt, which would affect the rest of the world.

Obama, his Democratic allies and Republican foes gave little sign of progress toward a compromise to raise the $14.3 trillion limit on borrowing by the US government, which will run out of cash to pay its bills on August 2.

"We still have a week to go -- there will be more political theatre before the deadline," said Shum.

"So we will likely see a lot of volatility in equities and oil futures this week," he said.

All sides agree that cash-strapped Washington must close its yawning budget deficit, but they disagree on the size and blend of spending cuts and revenue increases, as well as on how and whether to slice into the social safety net.

Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally so far.

Finance and business leaders have warned that failure to raise the US debt ceiling by August 2 would send shockwaves through the fragile world economy, while Obama has predicted a default would trigger economic "Armageddon".

Copyright AFP (Agence France-Presse), 2011