Investors' jitters send oil price tumbling

OIL edged below $108 a barrel yesterday as investors remained concerned about the progress of talks to reduce the US budget deficit, countering support given signs of a brighter economic outlook in China.

The first real movement in the talks began on Sunday when Republican House of Representatives Speaker John Boehner edged closer to President Barack Obama's key demands on taxation. But investors' concerns about the slow pace of progress weighed heavily on markets, including European stocks.

Brent crude for February was down 42c at $107.76 a barrel, having earlier risen as high as $108.50. US crude for January was down 7c to $86.66.

Oil had gained on Friday after surveys showed that China's manufacturing sector grew this month and that US factories were having their best month since April.

"We're just seeing a bit of consolidation after that uptick in Chinese data improved sentiment," said Ben le Brun, a markets analyst at OptionsXpress.

"The market is looking for the next leg-up and that would have to do [with] talks involving the US fiscal cliff."

The US and China are the world's biggest and second-biggest oil consumers, and stronger economies would increase their fuel use. Forecasters such as the International Energy Agency expect sluggish growth in the demand for oil next year.

Brent hit a high of $128 in March but is on course to end the year almost unchanged in percentage terms because economic jitters have countered price-supporting supply disruptions in the Middle East, among other factors.

Iran's oil revenue has been cut in half this year, a newspaper quoted Iran's economic minister as saying, which is an admission of how deeply Western sanctions are slashing Teheran's chief source of funds.