Oil prices sank below $84 a barrel Monday in Asia after Standard & Poor's lowered the U.S. credit rating. Benchmark oil for September delivery was down $3.27 to $83.61 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. Crude rose 25 cents during the day Friday to settle at $86.88.
Oil plunged after Standard & Poor's announced Friday it was lowering its rating for U.S. debt one notch from AAA to AA+. Investors are concerned the first-ever U.S. debt rating downgrade will batter already weakening consumer confidence and hurt economic growth.
The S&P move came after Democratic and Republican lawmakers failed to reach a satisfactory compromise on the burgeoning U.S. debt.
The deal to cut some $2.5 trillion over 10 years in exchange for raising the congressionally-set debt ceiling fell short of the S&P's call for the United States to cut $4 trillion over the same period.
Continued bi-partisan bickering, posturing and finger-pointing Sunday drew another warning from S&P ratings head John Chambers.
"If the fiscal position of the United States deteriorates further, or if the political gridlock becomes more entrenched, then that could lead to (another) downgrade," Chambers told ABC television.
"The outlook indicates at least a one in three chance of a downgrade" over the next six to 24 months, he said on the political talk show "This Week."
Washington remains deeply divided over how to reduce the $14 trillion debt without putting the brakes on an already sluggish economic recovery.
President Obama and the Democrats are calling for a "balanced approach" in which the government would raise taxes on the wealthy and big corporations while making some cuts to entitlement programs.
The Republicans, particularly those close to the Tea Party, have adamantly ruled out any new tax revenues, which they say would kill job creation.
Despite growing fears of a recession in the U.S., some analysts expect global economic growth to remain robust, supporting oil prices. Goldman Sachs recommends investors buy the Brent December 2012 futures contract, forecasting Brent will average $130 next year.
"We maintain that commodity markets will continue to tighten as long as global economic growth remains broadly positive and the emerging market economies in particular continue to perform," Goldman Sachs said in a report. "We expect that the market will continue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand.