The price of oil is lower Wednesday as traders look for signs of progress in negotiations over U.S. budget issues.

Benchmark oil dropped 88 cents, or 1 percent, to $86.31 per barrel in New York.

Oil has traded in a narrow range this month as cautious investors await the outcome of budget talks in Washington. Without an agreement, huge tax hikes and spending cuts will take effect Jan. 1 that economists say could push the U.S. into a recession. And would mean less demand for oil and other energy products.

"As long as our legislators keep tossing a whole lot of uncertainty at us, these fixed asset classes such as oil are more apt to drop than increase," oil analyst Jim Ritterbusch said.

The uncertainty over the "fiscal cliff" is also leading to swings on Wall Street. U.S. stocks fell in the morning but were higher by midday.

At the pump, the price of gasoline was flat overnight at $3.415 per gallon, according to AAA, Wright Express, and the Oil Price Information Service. That's about 13 cents less than a month ago but still 12 cents more than a year ago.

Brent crude, which is used to price many international varieties of oil, fell 91 cents to $108.96 a barrel on London's ICE Futures exchange.

In other energy futures trading on the New York Mercantile Exchange:

  • Heating oil fell 2 cents to $3 per gallon.
  • Wholesale gasoline fell 3 cents to $2.66 per gallon.
  • Natural gas fell 13 cents, or 3.3 percent, to $3.76 per 1,000 cubic feet.