Oil prices fall on cliff fears

Crude oil prices fell on Wednesday as traders fretted about US budget negotiations under way to avoid sharp spending cuts and tax increases in January.

New York's main contract, West Texas Intermediate (WTI) for delivery in January, shed 69 cents from Tuesday's close to settle at $86.49 a barrel.

In London, Brent North Sea crude for January dropped 36 cents to $109.51 a barrel.

"The petroleum markets are on the defensive along with a wide range of other risk assets, as investors expressed concern regarding a lack of detail on Monday's plan to reduce Greek debt, as well as worry that US legislators may not agree on a plan to sidestep the so-called fiscal cliff," said Tim Evans at Citi Futures.

President Barack Obama on Wednesday called for a deal with Republican lawmakers before Christmas on averting the "fiscal cliff" that economists say could pitch the economy into recession.

A major part of the day's decline in oil prices was due to concerns that the US budget talks "may not be going as well as we thought" last week, said Bart Melek at TD Securities.

Meanwhile, the US Department of Energy announced that the country's crude oil supplies dropped by 300,000 barrels last week, instead of rising as expected.

In other market news, British energy giant BP announced the sale of North Sea assets to Abu Dhabi-owned TAQA for more than $1.0 billion to help pay for the 2010 US Gulf of Mexico oil spill disaster.

Separately, the US Environmental Protection Agency said that BP was banned from winning new US government contracts "until the company can provide sufficient evidence to EPA demonstrating that it meets federal business standards."

The EPA said it was taking the action "due to BP's lack of business integrity as demonstrated by the company's conduct with regard to the Deepwater Horizon blowout, explosion, oil spill, and response."