WTI Drops on Concern U.S. Shutdown May Curb Fuel Demand

West Texas Intermediate fell from its highest settlement in almost two weeks as the U.S. government’s partial shutdown fanned concern that economic growth may slow.

Futures slid as much as 0.6 percent in New York. Talks between President Barack Obama and U.S. congressional leaders yesterday failed to break the budget logjam as the partial government closure entered its third day. WTI jumped 2 percent yesterday to the highest level since Sept. 20 after TransCanada Corp. (TRP) said it expects to complete work on the southern portion of its Keystone pipeline expansion by the end of October.

“Oil has been under pressure with the gloomy economic picture, and in the past few trading sessions with the U.S. government shutdown, which may slow oil demand,” said Myrto Sokou, an analyst at Sucden Financial Ltd. in London.

WTI for November delivery dropped as much as 65 cents to $103.45 a barrel in electronic trading on the New York Mercantile Exchange. It was at $103.69 as of 1:22 p.m. London time. The contract yesterday advanced to $104.10 in the first gain in four days. The volume of all futures traded was about 2 percent below the 100-day average.

Brent for November settlement fell as much as 49 cents, or 0.5 percent, to $108.70 a barrel on the London-based ICE Futures Europe exchange. The European benchmark was at a premium of $5.82 to WTI, up from $5.09 yesterday, the least since Sept. 23.

U.S. crude inventories climbed by 5.5 million barrels last week, data from the Energy Information Administration yesterday showed. They were forecast to rise by 2.5 million in a Bloomberg News survey.

Government Closures

The stalemate in Washington put about 800,000 federal employees out of work and shuttered many U.S. government functions, including infant nutrition aid, national parks and Internal Revenue Service audits. Other services, such as air-traffic control and Social Security benefits, were operating.

Completion of the Keystone pipeline will potentially reduce supplies at the WTI delivery point in Cushing, Oklahoma. 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.

WTI-Brent Spread

WTI will be $6 cheaper than Brent on average this quarter as slowing refinery demand lags behind the highest U.S. crude output in 24 years, according to the median estimate of nine analysts surveyed by Bloomberg this week. Brent’s premium to WTI narrowed to a three-year low in the third quarter amid speculation that the TransCanada link would help reduce crude stockpiles at Cushing.

The U.S. benchmark will probably narrow its discount and “trade much closer to Brent” next year, potentially surpassing the North Sea grade in the first half, Adam Longson, an analyst at Morgan Stanley in New York, said in an e-mailed report. Credit Suisse cut its estimate for WTI’s discount in the first half of 2014 by 50 percent, projecting a spread of $4 barrel during the six-month period, according to a report.

A low-pressure system is growing stronger in the Caribbean Sea as it moves northeast and may become a tropical depression, according to the National Hurricane Center in Miami. The cluster of thunderstorms has become better organized, a key indication a storm is forming.

Bad weather in the Gulf of Mexico can affect oil and natural gas operations for both Mexico and the U.S. The region 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.

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

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

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