The price of oil fell Wednesday as traders looked for signs of progress in negotiations over U.S. budget issues.

Benchmark oil dropped 69 cents to finish at $86.49 per barrel in New York. Earlier, the price was down nearly 2 percent. But much of the loss was erased after a Federal Reserve survey showed economic growth improved in October and early November across much of the country.

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 automatically take effect Jan. 1. Economists say that could push the U.S. back into a recession, and it 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" also is making Wall Street queasy. U.S. stocks dropped in the morning. They were climbing again by midday, headed for a higher close, after Republican House Speaker John Boehner said he thought a deal could be reached. And President Barack Obama said he hoped a budget deal would happen before Christmas.

At the pump, the price of gasoline was flat at a national average of $3.42 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That's about 13 cents less than a month ago and 12 cents more than a year ago.

Brent crude, which is used to price many international varieties of oil, fell 36 cents to $109.51 per barrel on London's ICE Futures exchange.

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

— Heating oil fell less than a penny to end at $3.01 per gallon.

— Wholesale gasoline rose less than a penny to end at $2.73 per gallon.

— Natural gas fell 7.3 cents to end at $3.70 per 1,000 cubic feet.