The price of oil fell to near $88 a barrel on Wednesday amid worries over the U.S. economy, largely because a budget deal has yet to be agreed between the White House and Congress.
By early afternoon in Europe, benchmark crude for January delivery was down 81 cents to $88.28 a barrel in electronic trading on the New York Mercantile Exchange. The contract finished up 18 cents at $89.09 a barrel on the Nymex on Monday.
Oil prices have been knocked by a survey showing that manufacturing the U.S. shrank in November to its weakest level since July 2009 as businesses worry about the so-called "fiscal cliff" — sharp tax increases and spending cuts that take effect in 2013 unless U.S. political leaders strike a budget deal before then.
However, flaring tensions in the Middle East, including Egypt's widening political crisis and reports that Syria may be readying its chemical and biological weapons against rebels, kept prices from falling more. A falling dollar, which makes crude cheaper for traders using other currencies, also supported prices. On Tuesday, the euro was up to $1.3096 from $1.3059 late Monday in New York.
"Risks to supply, the weaker U.S. dollar and the prospect of the bond purchasing volume being topped up at next week's meeting of the Fed should limit the price slide," said a report from Commerzbank in Frankfurt. "So we expect the price weakness to be only temporary in nature."
Brent crude, which is used to price international varieties of oil, was down $1.26 to $109.66 per barrel on the ICE Futures Exchange in London.
Other energy futures on the New York Mercantile Exchange:
— Heating oil fell 3.24 cents to $3.0238 a gallon
— Natural gas lost 3.8 cents to $3.553 per 1,000 cubic feet
— Wholesale gasoline retreated 2.76 cents to $2.6989 a gallon.
Pamela Sampson in Bangkok contributed to this report.