Benchmark West Texas Intermediate crude dropped 86 cents to finish at US$93.28 a barrel in New York. That's the largest decline since Dec. 21.
Brent crude, used to price international varieties of oil, dropped $1.58 to end at US$110.30 a barrel on the ICE Futures exchange in London.
President Barack Obama and congressional Republicans are headed for another showdown over the debt ceiling. Oil investors fear a reprise of the standoff in the summer of 2011. Standard & Poor's cut the U.S. credit rating that August and oil dropped about seven per cent for the month.
Obama warned of dire consequences if Congress fails to increase the government's borrowing authority. "Investors around the world will ask if the United States of America is in fact a safe bet. Markets could go haywire," the president said.
Traders also saw signs that gasoline demand is declining. Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said the difference between what refiners pay for crude oil and what they charge for refined products — known in the industry as the crack spread — has been shrinking.
It's a sign "that gasoline demand is still falling appreciably short of prior expectations," he wrote in a note to clients.
In other energy futures trading on the New York Mercantile Exchange, wholesale gasoline fell five cents to finish at US$2.71 a U.S. gallon (3.79) litres, heating oil fell five cents to finish at US$3.01 a gallon and natural gas rose eight cents to end at $3.46 per 1,000 cubic feet.
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