NEW YORK-Oil slipped on yes­ter­day, af­ter prices hit 11-week highs, on wor­ries about loom­ing US bud­get bat­tles and signs of grow­ing con­cern by the US Fed­er­al Re­serve about buy­ing bonds to spur eco­nom­ic growth.

Fo­cus shift­ed from the fis­cal cliff deal reached ear­li­er this week to the up­com­ing wran­gling US Pres­i­dent Barack Oba­ma and Re­pub­li­cans in Con­gress will face over the bud­get, which could put fur­ther stress on the world's biggest econ­o­my.

The oil mar­kets have been close­ly watch­ing the US bud­get cri­sis, as well as on­go­ing prob­lems in the eu­ro zone, for signs it could fur­ther damp­en strug­gling fu­el de­mand.

Brent crude jumped to over US$112 a bar­rel for the first time since mid-Oc­to­ber on Wednes­day af­ter the fis­cal cliff deal was reached, but play­ers said the mar­ket was await­ing strong signs that the econ­o­my was im­prov­ing to ex­tend the ral­ly longer term.

"The un­cer­tain­ty be­cause of the bud­get cuts and the ceil­ing de­bate seem to have tem­pered the mar­kets en­thu­si­asm that things were get­ting bet­ter and that's why things have stalled," said Gene McGillian, an­a­lyst, Tra­di­tion En­er­gy in Stam­ford, Con­necti­cut.

"I think we prob­a­bly have more to go on the ral­ly but a sig­nif­i­cant ral­ly from here has to come from signs the econ­o­my is re­al­ly im­prov­ing."

Prices fell fur­ther in a wider sell off of risk as­sets, in­clud­ing eq­ui­ties, in US af­ter­noon trade af­ter min­utes from the Fed­er­al Open Mar­ket Com­mit­tee showed ris­ing con­cern about the risks of the Fed's pol­i­cy of buy­ing bonds to stim­u­late growth.

Brent crude set­tled 33 cents low­er at US$112.14 a bar­rel af­ter ris­ing more than one per cent on Wednes­day to set­tle at their high­est lev­el since Oc­to­ber. US crude fell 20 cents to set­tle at US$92.92 a bar­rel, eras­ing small­er gains from ear­li­er in the day af­ter the Fed min­utes were re­leased.

Brent's pre­mi­um to US crude nar­rowed, in part due to news a ma­jor ex­pan­sion of the Sea­way pipeline-aimed at eas­ing the bot­tle­neck at the Cush­ing, Ok­la­homa oil hub which has de­pressed US prices-should be at full rates by the end of next week.

The spread be­tween Brent and West Texas In­ter­me­di­ate nar­rowed to just over US$19 a bar­rel on Thurs­day, down from 2012 highs of about US$26.

Brent trad­ing vol­umes were healthy, about 17 per cent above the 30-day mov­ing av­er­age, while US crude trade was about av­er­age for that pe­ri­od.

Eyes on eco­nom­ic, in­ven­to­ry da­ta

US eco­nom­ic da­ta re­leased Wednes­day was mixed, with US pri­vate-sec­tor em­ploy­ment da­ta com­ing in stronger than ex­pect­ed.

A sep­a­rate re­port showed the num­ber of Amer­i­cans fil­ing new claims for un­em­ploy­ment ben­e­fits rose last week, and traders will now be close­ly watch­ing out for pay­rolls da­ta com­ing out on to­day.

Da­ta al­so showed the ser­vice sec­tor of No 2 oil con­sumer Chi­na ex­pand­ed in De­cem­ber, fu­el­ing hopes that the world's sec­ond-largest econ­o­my and top en­er­gy con­sumer is re­cov­er­ing. (Reuters)