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Oil slips on fears of US fiscal crisis

Brent crude fell 29 cents to $109.58 per barrel by 0940 GMT, after dropping to $109.31 on Tuesday - its lowest since Nov. 20. U.S. crude shed 27 cents to trade at $86.91 per barrel.

A failure by U.S. lawmakers to make progress in their budget talks - raising the spectre of automatic spending cuts and tax hikes - has pushed sensitive assets like oil and equities lower.

The U.S. Congress pushed toward a compromise on Tuesday on a deal to avert the “fiscal cliff” of tax increases and spending cuts due to take effect next year, but an agreement still appeared elusive.

“There is bearish sentiment caused by problems in U.S. negotiations, with the fiscal cliff still looming,” said Filip Petersson, analyst at SEB in Stockholm.

Further depressing the outlook for oil demand, the Organization for Economic Cooperation and Development on Tuesday cut its global growth forecasts, warning that the debt crisis in the recession-riddled euro zone was the greatest threat to the world economy.

“The OECD report means there’s a very bearish picture, although relatively firm recent data from the U.S. and China is preventing bigger retreats,” Petersson said.

Middle East support

The mounting political crisis in Egypt and escalating violence in Syria has led to worries about potential disruption to supplies in the Middle East, helping prevent a larger decline on oil prices.

Tens of thousands of Egyptians rallied on Tuesday against President Mohamed Mursi in one of the biggest outpourings of protest since Hosni Mubarak’s overthrow, accusing the Islamist leader of seeking to impose a new era of autocracy.

Investors are now eyeing data on U.S. crude stockpiles from the U.S. Energy Information Administration later in the day for hints on demand from the key consumer.

Data released by the American Petroleum Institute late Tuesday showed crude stocks rose by 2 million barrels for the week ended Nov. 23. Gasoline stocks rose 2.3 million barrels and distillate stocks rose 268,000 barrels, the API said.

Crude stocks were expected to be up only 300,000 barrels and gasoline up 900,000 barrels, a Reuters survey showed.

Reuters