Crude prices slipped on Thursday as investors started to worry about the upcoming budget talks in the divided U.S. Congress.

After a strong start of the year fueled by the last-minute "fiscal cliff" deal, crude prices retreated on Thursday as investors' focus shifted to the upcoming budget talks between Democrats and Republicans.

The looming difficulties in reaching an agreement on spending cuts and raising debt ceiling pressured heavily on the oil markets.

The Energy Information Administration would release weekly inventories data on Friday, which was expected to remain heavy. Sufficient supplies also posed pressure on U.S. crude benchmark.

The dollar strengthened on Thursday, making the dollar- denominated oil less attractive.

Besides, the U.S. initial jobless claims rose 10,000 to 372,000 in the week ended Dec. 29 due to seasonal factors, according to the Labor Department on Thursday. The increase in jobless claims added to the negative tone on the crude markets.

However, a report from the Automatic Data Procession (ADP) Research Institute indicated that U.S. private sector added 215, 000 jobs in December, well beyond market estimates.

Meanwhile, data showed that China's service sector expanded further in December, an indication of steady economic recovery in the world's second largest oil consumer, offering support to oil prices.

The continuing tension in the Middle East, especially the confrontation between Iran and the West over Teheran's disputed nuclear program, helped limit the losses.

Light, sweet crude for February delivery lost 20 cents, or 0.21 percent to settle at 92.92 dollars a barrel on the New York Mercantile Exchange. Brent crude for February delivery dropped 33 cents, or 0.29 percent to close at 112.14 dollars a barrel.