Crude Fluctuates as U.S. Government Shutdown Enters Third Day

West Texas Intermediate was little changed as the U.S. government shutdown entered a third day and forecasts showed Tropical Storm Karen in the Gulf of Mexico will strengthen to near hurricane levels tomorrow.

Prices fluctuated near a two-week high. The first face-to-face talks between President Barack Obama and congressional leaders failed to break the budget logjam yesterday. Karen is expected to make landfall on the Alabama-Florida line late Oct. 5, according to the National Hurricane Center. WTI jumped yesterday on news of the planned completion of the southern portion of the Keystone pipeline expansion.

“They are not making any process on reopening the government and it’s making the market more and more nervous,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The weather news and the Keystone news are keeping oil up.”

WTI for November delivery slid 13 cents to $103.97 a barrel at 9:42 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 4.2 percent above the 100-day average.

Brent for November settlement rose 46 cents, or 0.4 percent, to $109.65 a barrel on the London-based ICE Futures Europe exchange. Volume was percent below the 100-day average. The European benchmark’s premium over WTI widened to as much as $5.91, up from $5.09 yesterday.

White House Meeting

The Oval Office meeting between Obama and congressional leaders ended with both sides reiterating their positions and the points they’ve been making for days, raising the prospect of a prolonged standoff over the government shutdown and raising the U.S. debt limit.

Democrats, including Obama, say Republicans must end the shutdown and raise the debt ceiling as a precondition to talks on broader budgetary disputes. Republicans want to use the fiscal deadlines to extract changes in Obama’s health-care law.

Mark Zandi of Moody’s Analytics estimates a three- to four-week shutdown would cut U.S. economic growth by 1.4 percentage points in the fourth quarter. Moody’s projects a 3 percent rate of growth in the fourth quarter without a closure.

The U.S., the world’s biggest oil-consuming country, used a fifth of the world’s oil last year, according to BP Plc’s Statistical Review of World Energy.

Karen’s Movement

Karen is located 40 miles northwest of Cabo Catoche, Mexico, and moving north-northwest, the NHC said in an advisory at 9 a.m. The system has top sustained winds of 60 miles (95 kilometers) per hour.

Thee Gulf of Mexico is home to 23 percent of U.S. crude production, 5.6 percent of gas output and more than 45 percent of petroleum refining capacity, according to the Energy Department.

Destin Pipeline was evacuating all non-essential personnel from operations in the central and eastern part of the Gulf operated by BP Plc (BP/), according to a company notice yesterday. BP also said it was pulling non-essential workers at four deepwater production platforms.

Crude jumped 2 percent yesterday after TransCanada Corp. said it expects to complete work on a section of the Keystone pipeline expansion by the end of October. The 700,000-barrel-a-day pipeline will run to the Texas Gulf Coast from Cushing, Oklahoma, the delivery point for WTI futures.

Completion of the Keystone pipeline will potentially reduce supplies at Cushing. TransCanada will begin filling its Gulf Coast pipeline with oil soon after completion, a process that is forecast to take 30 days, Les Cherwenuk, project director for the company, said in an interview yesterday in Houston.

To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net;

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