Republican lawmakers withheld backing for an effort to head off $600 billion worth of tax rises and across-the-board spending cuts that could push the US economy into recession next year.

 Global stock markets, the euro and commodities all fell and the sell-off was exacerbated by a gradual decline in volume as investors prepared for the long end-year seasonal break.

 Brent dropped $1.45 to a low of $108.75 before recovering slightly to trade around $108.90 by 1442 GMT. Brent has risen by just 1.5 percent so far in 2012, having averaged around $111.70, not far above its 2011 average of $110.91.

The US budget stalemate had an even bigger impact on US crude futures, which dropped to a low of $87.96, down $2.17 per barrel.

"The United States is the dominant factor in the world economy, and if growth falters there, it will affect all the other markets," said Barbara Lambrecht, commodities analyst at Commerzbank in Frankfurt.

"We know 2013 is going to be another tough year for Europe and we all need the support of the US economy," she added.

Only 11 days are left to prevent automatic tax hikes and spending cuts, referred to as the "fiscal cliff".

"People are taking off risk ahead of the break," said Amrita Sen, chief oil analyst at consultancy Energy Aspects in London.

"With a backdrop where the uncertainties are fairly high, it's safer to not have a position. It's the risk associated with being caught long in a thin volume market."

Analysts are more upbeat 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 US economy, according to many forecasters.

The US 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.