Oil down on fears over next US budget battles

New York's main contract, light sweet crude for delivery in February, dropped 75 cents to $92.17 a barrel in the afternoon and Brent North Sea crude for February delivery shed 72 cents to $111.42.

Oil prices hit an 11-week high after the US Congress on Wednesday backed an agreement that averted across-the-board tax hikes and automatic spending cuts which could have tipped the economy into recession.

However, while the tax problem was addressed, another row is expected as an agreement must be struck within two months to deal with billions of dollars of spending cuts as well as to raise the country's debt ceiling.

On Thursday those concerns were compounded by Fed minutes from last month showing a growing bias towards some policy tightening this year, with some members looking to end the bank's asset purchases during 2013 and others by the end of the year.

"Focus shifted... to the upcoming wrangling US President Barack Obama and Republicans in Congress will face over the budget, which could further stress the world's biggest economy," Phillip Futures said in a market commentary.

Dutch bank ABN Amro said in a report that politics remains a "risk factor" for energy.

"While the aftermath regarding the US fiscal cliff will most likely continue to dominate the news during the coming weeks, other political drivers will be very important for oil prices as well," it said.

"It will be interesting to see whether... Obama can and will keep his promise to promote industries that are crucial to US economic growth and, in this case, the country's possible energy independence."

The United States is the world's biggest oil consuming nation and its energy consumption patterns can influence global prices.