WTI Crude Drops Amid Potential U.S. Government Shutdown

West Texas Intermediate crude fell to the lowest in almost three months on concerns the U.S. government is heading for a shutdown over a budget stalemate that may reduce demand in the world’s largest oil consumer.

Futures slipped as much as 1.5 percent in New York, extending this month’s decline to 5.6 percent. The U.S. Congress has one day to end a spending gridlock that raises the risk of the first government shutdown in 17 years. Prices also fell after President Barack Obama and Iran’s President Hassan Rouhani spoke by phone on Sept. 27 about the Islamic Republic’s nuclear program and the United Nations Security Council approved a plan to eliminate Syria’s chemical weapons.

“The U.S. was one of the places in the world where economic data has improved for the last three to four months, and if we really get ‘Fiscal Cliff 2.0’ that growth is at risk,” said Andy Sommer, a senior oil analyst at Axpo Trading AG in Dietikon, Switzerland. “You’ll have to reduce economic growth forecasts, and, therefore, oil demand forecasts.”

WTI for November delivery slid as much as $1.54 to $101.33 a barrel in electronic trading on the New York Mercantile Exchange, the lowest intraday price since July 5. The contract was at $101.50 at 1:17 p.m. London time. The volume of all futures traded was about 18 percent below the 100-day average. Prices are up 5.2 percent this quarter and 11 percent in 2013.

Brent for November settlement fell as much as $1.21, or 1.1 percent, to $107.42 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude was at a premium of $6.22 to WTI futures, up from $5.76 on Sept. 27.

Bullish Bets

The House of Representatives voted 231-192 yesterday to extend U.S. government funding through Dec. 15 by tying it to limits on the central provisions of Obama’s Affordable Care Act. The government might shut tomorrow should the Senate reject the bill.

A stoppage may trim fourth-quarter economic growth by as much as 1.4 percentage points, depending on its duration, according to economists. The biggest effect would come from the output lost from furloughed workers. Essential operations and programs with dedicated funding would continue.

Hedge funds cut bullish bets on crude to a 12-week low on the U.S. budget impasse and easing concern about the Middle East. Money managers reduced net-long positions in WTI, or wagers that prices will increase, by 2.1 percent to 275,098 futures and options combined in the seven days ended Sept. 24, according to the Commodity Futures Trading Commission’s Sept. 27 Commitments of Traders report. It was the lowest level since July 2.

Middle East

The phone call between Obama and Rouhani was the first time since the 1979 Iranian revolution that leaders of the two countries have spoken directly. During their 15-minute exchange, conducted via interpreters, the presidents “expressed their mutual political will to rapidly solve the nuclear issue,” Rouhani said on Twitter.

“The apparent progress in diplomacy on Iran and Syria will further ease tensions,” said Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management. “People felt that there was far more than $10 for geopolitical risk, and I think quite a bit of that has come out as the tension over Iran and Syria seems to have eased.”

The UN Security Council voted 15-0 on Sept. 27 to adopt a resolution drafted by the U.S., the U.K. and France to rid Syria of chemical weapons in response to an Aug. 21 sarin gas attack near Damascus that killed more than 1,400 people.

Oil rose to a two-year high on Aug. 28 amid concern that a U.S.-led assault would widen the Syrian conflict and disrupt Middle East supplies. Syria borders Iraq and is near Iran, which together control almost a fifth of the production capacity in the Organization of Petroleum Exporting Countries, Bloomberg estimates show. The Middle East accounted for about 35 percent of global oil production in the first quarter of this year, according to the International Energy Agency.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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