Oil falls below US$86 a barrel amid economic worries, including 'fiscal cliff'

Oil prices fell below US$86 a barrel Thursday as investors focused on global economic issues, including the so-called “fiscal cliff” in the United States.

Benchmark West Texas Intermediate crude dropped by 87 cents to finish at US$85.45 a barrel in New York. Brent crude, used to price many kinds of international oil, fell 47 cents to end at US$108.01 a barrel on the ICE Futures exchange in London.

Expiring tax cuts and broad spending cuts will take effect in January unless the White House and Congress make a deal. Economists worry that this so-called fiscal cliff would have a serious impact on the U.S. economy. Slower economic growth means less demand for fuels such as gasoline, heating oil and natural gas.

On Thursday the U.S. Energy Information Administration said crude oil supplies grew by 1.1 million barrels last week to 375.9 million barrels. That’s 11.6 per cent above year-ago levels, but it’s also less than the 1.5 million barrels expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos. Meanwhile, gasoline supplies shrank. Analysts had expected gasoline supplies to be unchanged from the previous week.

Oil prices had risen earlier in the day following Israel’s attack on Islamic militants in Gaza. However, analysts downplayed the risk that the fighting poses to energy supplies.

In other energy futures trading on the New York Mercantile Exchange, heating oil fell 1.47 cents to finish at US$2.9735 a U.S. gallon (3.79 litres), wholesale gasoline rose 1.72 cents to end at US$2.6962 a gallon and natural gas fell 5.7 cents to finish at $3.7030 per 1,000 cubic feet.