The price of oil slipped below $86 a barrel Monday as traders worried about the threat to the U.S. economy if President Barack Obama and lawmakers don't reach an agreement to avoid automatic tax hikes and spending cuts.
By early afternoon in Europe, benchmark crude for December delivery was down 38 cents to $85.69 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 98 cents to finish at $86.07 per barrel on the Nymex on Friday.
Obama and congressional leaders face a Jan. 2 deadline to reach an agreement or at least come up with a framework to deal with expiring Bush-era tax cuts and automatic spending cuts to defense and domestic programs — known as the "fiscal cliff."
Economists say the cuts could total $800 billion, cost 3 million jobs and plunge the U.S. back into recession. Analysts say more stock market turmoil could arise as the deadline approaches. Obama is to begin talking to lawmakers in Washington this week on a deal.
Prices were also weighed down by forecasts of rising supplies. The International Energey Agency forecast that the United States would increase output steadily to become the world's largest oil producer by around 2020, ahead of Saudi Arabia. That will allow the country to become a net oil exporter by 2030, the IEA said in its World Energy Outlook 2012.
The report said the rebound in U.S. oil and gas production is being driven by new exploration technologies and discoveries of shale gas. This is "steadily changing the role of North America in global energy trade," the Paris-based IEA said in its report.
"The United States, which currently imports around 20 percent of its total energy needs, becomes all but self-sufficient in net terms — a dramatic reversal of the trend seen in most other energy-importing countries," the agency said.
The IEA added that global trends in the energy markets would be influenced by some countries' retreat from nuclear power, the fast spread of wind and solar technologies and a rise in unconventional gas production.
Meanwhile, Brent crude, used to price international varieties of oil, fell 19 cents to $109.21 a barrel on the ICE Futures exchange in London.
Among other energy futures trading on Nymex:
— Heating oil fell 0.37 cent to $3.0018 a gallon.
— Wholesale gasoline lost 0.17 cent to $2.6562 a gallon.
— Natural gas added 0.9 cent to $3.512 per 1,000 cubic feet.
Pamela Sampson in Bangkok contributed to this report.