Oil futures fell 1% Wednesday as the impasse over the U.S. debt ceiling hardened, while a surprise drop in U.S. durable goods orders also weighed.

Later in the day, market participants will likely shift their attention to the U.S. Department of Energy's weekly report on U.S. oil and fuel inventories, due at 10:30 a.m. EDT.

Light, sweet crude for September delivery traded down 97 cents, or 1%, to $98.63 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange fell 7 cents, or 0.1%, to $118.21 a barrel.

U.S. lawmakers remained far apart Wednesday from an agreement to raise the U.S. debt ceiling before Aug. 2, a date when the U.S. Treasury Department has said the government will run out of cash to pay its bills. Republican leaders forwarded a plan in the House of Representatives to raise the country's borrowing limit, but they delayed a vote on the bill until Thursday because it wasn't clear how many lawmakers would support it.

If the government fails to reach an agreement, the three major ratings agencies have said they will downgrade the U.S.'s triple-A credit rating. That could raise the cost of borrowing and possibly slow the economic recovery in the world's biggest crude consumer. An actual default on U.S. obligations could be even more disastrous, some analysts warn.

"Ratings agencies can already easily make the case for a downgrade of the U.S. credit rating from AAA to AA," analysts at JBC Energy, a consultancy based in Vienna, said in a research report. "We think this is going to happen, reflecting not only the relatively dire state of the U.S. economy, but also the inability of the political system to cope with the current situation in a responsible manner."

Crude futures extended their losses following a surprise drop in U.S. durable goods orders last month. The decline signals the sluggish economy is weighing on the country's manufacturing sector, a major user of energy.

Manufacturer's orders for goods like transportation, computers and machinery fell 2.1% to a seasonally adjusted $191.8 billion, the Commerce Department said. Economists surveyed by Dow Jones Newswires had expected orders would rise 0.4%.

Attention is seen shifting later Wednesday to the Energy Department's weekly report. A similar report from the American Petroleum Institute late Tuesday showed a surprise increase in inventories, sending crude futures sinking in after-hours trading.

The industry group said oil stockpiles rose 4 million barrels last week. A rise in stockpiles can signal weaker demand from refiners and can weigh on oil futures.

Analysts are expecting the DOE to report a 1.4 million-barrel drop in U.S. oil inventories, according to a survey by Dow Jones Newswires. Gasoline stocks are seen rising 400,000 barrels, while inventories of distillates, including heating oil and diesel, are seen rising 1.7 million barrels.

Front-month August reformulated gasoline blendstock, or RBOB, recently traded up 2.39 cents, or 0.8%, to $3.1775 a gallon. August heating oil traded down 0.55 cent, or 0.2%, to $3.1079 a gallon.