WTI Falls to Three-Month Low on Looming U.S. Shutdown

West Texas Intermediate crude dropped to the lowest level in almost three months as the U.S. was poised for a U.S. government shutdown that may reduce demand in the world’s largest oil-consuming country.

Futures slipped 0.5 percent, capping the biggest monthly loss since February. Congress has until the end of the day to resolve a budget stalemate. A shutdown would cut fourth-quarter U.S. growth as much as 1.4 percentage points, economists said. WTI 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 scrap Syria’s chemical arms.

“The fear that the U.S. government will shut down this evening is the focus of the market,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York.

WTI crude for November delivery decreased 54 cents to $102.33 a barrel on the New York Mercantile Exchange, the lowest settlement since July 3. The volume of all futures traded was about 27 percent below the 100-day average at 4:14 p.m. Prices slid 4.9 percent this month. They climbed 6 percent this quarter and are up 11 percent in 2013.

Brent oil for November settlement fell 26 cents to end the session at $108.37 a barrel on the London-based ICE Futures Europe exchange. Volume was 26 percent lower than the 100-day average. Prices dropped 4.9 percent in September and are down 2.5 percent this year. They rose 6.1 percent in the third quarter.

The European benchmark crude closed at a $6.04 premium to WTI, compared with $5.76 yesterday.

Deadlocked Congress

Declines eased as the deadlocked U.S. Congress headed into the final hours before the partial government shutdown without any signs of averting widespread furloughs of federal employees. Republicans and Democrats remained at odds over whether to tie any changes to the 2010 Affordable Care Act to a short-term extension of government funding.

“The market seems to be less concerned about the impending government shutdown than was earlier the case,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The feeling appears to be that it will only last a couple days.”

The Senate voted 54-46 today to reject the House of Representatives’ latest plan, in a party-line move that puts the pressure back on House Republicans. Even if the budget fight is resolved, lawmakers would immediately move to the next fiscal dispute over raising the $16.7 trillion debt ceiling.

Furloughed Workers

The biggest effect would come from the output lost from furloughed workers. Essential operations and programs with dedicated funding would continue.

“Congress is playing football with consumer confidence and that’s hurting the economic expectations for everything, including demand for oil,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “This is a nervous time for the market.”

Equities and commodities declined on prospect of a U.S. government shutdown. The Standard & Poor’s 500 Index slipped 0.6 percent and the Dow Jones Industrial Average fell 0.8 percent. S&P’s GSCI Index of 24 raw materials slid 0.6 percent.

“The combination of the prospect of lower economic growth here and an improving geopolitical situation have prices moving lower,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “A government shutdown has the potential of shaving as much as 1.4 percentage points off of U.S. growth. The Syrian risk premium has come out of the market and the Iranian one is dissipating.”

Phone Conversation

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.

Sanctions aimed at stopping the Islamic republic’s nuclear program have hindered its ability to export crude oil. Iran is a key player in Syria’s civil war, nuclear proliferation and Middle East peace.

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.

‘Positive Developments’

“We’ve had positive developments on both the Iran and Syria fronts,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We kept on hearing that there was $10 of geopolitical risk built into the price. It looks like the oil market is losing it.”

Oil rose to a two-year high of $112.24 on Aug. 28 amid concern that a U.S.-led assault would widen the Syrian conflict and disrupt Middle East supplies. Syria borders Iraq, the second-biggest crude producer in the Organization of Petroleum Exporting Countries, Bloomberg estimates show.

OPEC crude production rose 43,000 barrels to an average 31.082 million barrels a day in September, the most in 10 months, the survey of oil companies, producers and analysts showed. Saudi output advanced 50,000 barrels to 10 million barrels a day in September, the highest level for OPEC’s biggest supplier in monthly data going back to 1989.

Implied volatility for at-the-money WTI options expiring in November was 21.8 percent, up from 20 on Sept. 27, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 404,083 contracts as of 4:14 p.m. It totaled 466,571 contracts yesterday, 24 percent below the three-month average. Open interest was 1.86 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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