NEW YORK, N.Y. - The price of oil fell Thursday as talks between U.S. political leaders on a crucial budget deal hit a new snag.

Benchmark West Texas Intermediate crude for February delivery was down 16 cents to US$89.83 a barrel in morning trading on the New York Mercantile Exchange. The contract jumped $1.58 on Wednesday, the biggest one-day price rise in a month.

Negotiations between President Barack Obama and Republican House Speaker John Boehner have dictated market sentiment in recent weeks.

On Wednesday, it appeared that a deal to avoid the so-called "fiscal cliff" of automatic spending cuts and tax hikes due at the start of next year was still out of reach. The White House threatened to veto an alternative plan that Boehner proposed.

Without a deal, the hundreds of billions of dollars in spending cuts and tax hikes that will take effect could throw the U.S. economy back into recession, economists believe. Such a prospect would likely mean decreasing energy demand.

Brent crude, used to price international varieties of oil, fell 16 cents to US$110.20 a barrel in London.

In other trading on the New York Mercantile Exchange, heating oil rose one cent to US$3.04 a U.S. gallon (3.79 litres), wholesale gasoline gained a penny to US$2.75 a gallon and natural gas rose 10 cents, or 3.1 per cent, to US$3.42 per 1,000 cubic feet.

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