Oil futures pulled back Monday, weighed by fears that U.S. lawmakers could fail to raise the country's borrowing limit by an Aug. 2 deadline.

Light, sweet crude for September delivery fell $1.06, or 1.1%, to $98.81 a barrel on the New York Mercantile Exchange. Brent crude on ICE Futures Europe traded down $1.44, or 1.2%, to $117.23 a barrel.

Negotiations over raising the U.S. debt ceiling faced a setback over the weekend after talks between President Barack Obama and House Speaker John Boehner collapsed. On Monday, Republicans and Democrats on Capitol Hill were formulating separate plans for how to raise the country's borrowing limit, but the impasse is raising fears that the government will run out of cash to pay its bills before an agreement is reached.

The three major credit rating agencies have threatened to cut their triple-A rating on U.S. debt if the government fails to raise the debt ceiling. Analysts say such an event would likely trigger a sell-off of risky assets like commodities because it could raise the cost of borrowing, hobbling the already-fragile economic recovery.

"It seems like we're focused on the demand-destruction element of this," said Phil Flynn, analyst at PFG Best in Chicago. "Oil is saying, 'Wait a second, if they don't get a debt deal, that's going to create havoc in the economy and demand for oil will be a little bit less.'"

Commodities traded broadly lower Monday on the debt ceiling concerns. Gold futures, widely viewed as a safe-haven, rallied.

Much of the rise in oil prices this year has been driven not by news in the U.S., but by brisk growth in emerging markets like China. Still, signs that the economic recovery in the U.S., the world's largest crude consumer, is threatened could trigger cause a pullback in prices, at least in the short term.

In the longer term, the implications for crude prices are less clear. Such an event could weaken the dollar, analysts say, which typically boosts crude prices by making the commodity cheaper for holders of other currencies. It could also raise expectations that the Federal Reserve will launch another monetary stimulus program, which in the past has boosted crude prices as well.

The impact of a default could be confined to Nymex crude prices, others have pointed out. Brent crude, widely viewed as a more global oil benchmark, remains supported by concerns about supply disruptions in the Middle East and might see less impact from a U.S. default. That could widen the already-historic disparity between the two benchmarks, which Monday stood at about $18 a barrel.

"WTI has begun to mirror domestic inventory dynamics and domestic growth dynamics," said Jason Schenker, president of Prestige Economics in Austin, Texas, referring to the Nymex contract for West Texas Intermediate crude.

Front-month August reformulated gasoline blendstock, or RBOB, recently traded down 3.21 cents, or 1%, to $3.0980 a gallon. August heating oil gave up 2.83 cents, or 0.9%, to $3.0997 a gallon.