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.