Oil fell for the first time in four days in New York on speculation that gains were excessive as US manufacturing unexpectedly shrank and lawmakers disagreed on a budget plan in the world's biggest crude-consuming nation.
Futures slid as much as 0.6 per cent after prices approached technical resistance.
The Institute for Supply Management's factory index dropped to the lowest level since July 2009, while House Republicans rejected president Barack Obama's demand for higher tax rates.
Mr Obama and congressional leaders are trying to avert more than $600 billion in tax increases and spending cuts known as the fiscal cliff starting January.
"One of the concerns is that sentiment toward the US recovery will start to wane as we move into more of a critical period for fiscal cliff," said Jonathan Barratt, the chief executive officer of Barratt's Bulletin, a commodity newsletter in Sydney.
Crude for January delivery slipped as much as 57 cents to $88.52 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.69 at 4.01pm Singapore time.
The contract climbed 18 cents yesterday to $89.09, the highest close since November 19. Prices are down 10 per cent this year.
Brent oil for January settlement on the London-based ICE Futures Europe exchange declined as much as 49 cents, or 0.4 percent, to $110.43 a barrel.
The European benchmark crude was at a premium of $21.84 to the New York-traded West Texas Intermediate grade.
The spread was $21.83 yesterday, the narrowest since November 2.
Bloomberg
