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Oil prices drop on US budget uncertainty, Iran tension

New York’s main contract, West Texas Intermediate (WTI) for delivery in January, dropped 22 cents to $87.85 per barrel.

Brent North Sea crude for January shed 23 cents to $110.53 a barrel in London midday deals.

“Crude oil prices consolidated within the recent range... due to the mixed signals from the US about the fiscal cliff programme and the on-going uncertainty about eurozoneâ’s economic conditions,” said Sucden Financial Research analyst Myrto Sokou.

Lawmakers in Washington are locked in tough talks on averting the fiscal cliff of tax rises and spending cuts to come into effect on January 1, which could tip the economy back into recession.

But while Republican House Speaker John Boehner has rejected as “ridiculous” President Barack Obama’s first proposal to cut the country’s deficit, investors are broadly confident a deal will be achieved by the end of the year.

In Europe, official data published Friday showed unemployment in the eurozone hit a record high in October with more than 170,000 extra jobs lost and youth unemployment at almost 24 percent as the economy slumped into recession.

While world crude prices are being pressured by economic strains, support is being won by unrest in the oil-rich Middle East.

Oil prices briefly soared last week as violence intensified in the Israel-Hamas conflict, stoking supply worries, but the market trimmed its gains in the wake of a ceasefire.

Offering price support for some time now has been tensions over major oil producer Iran. On Thursday, the UN atomic agency called for diplomatic “urgency” in the Iranian nuclear standoff, even as Tehran signalled its continued defiance of UN Security Council demands to suspend key activities.

The International Atomic Energy Agency’s latest report on Iran on November 16 showed that despite sanctions pressure, Iran has continued to expand its capacity to enrich uranium to purities of 20 percent, close to the 90 percent mark needed for a weapon.