Crude Drops to Three-Month Low on Budget Impasse

West Texas Intermediate dropped to a three-month low as Senate leaders put on hold bipartisan talks to end the budget impasse.

Prices slid 1.2 percent. Senate leaders are waiting to see what the House of Representatives does with a competing plan aimed at ending a 15-day-old government shutdown and preventing a default, Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid, said. Crude futures also fell as world powers held talks with Iran on its nuclear program.

“The market continues to price in the uncertainty about what’s happening in D.C.,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Fiscal talks in Washington continue to weigh on prices. The talks with Iran might be cutting some geopolitical risk.”

WTI for November delivery slid $1.20 to $101.21 a barrel on the New York Mercantile Exchange, the lowest settlement since July 2. Trading volume was 3.2 percent below the 100-day average at 4:09 p.m.

Brent for November settlement, which expires tomorrow, fell $1.08, or 1 percent, to $109.96 a barrel on the London-based ICE Futures Europe exchange. The more-active December contract lost 82 cents to $109.42. Trading volume was 8.2 percent below the 100-day average. The front-month European benchmark was at a premium of $8.75 to WTI after narrowing for the first time in six sessions yesterday to $8.63.

Budget Talks

Reid, a Nevada Democrat, and Senate Minority Leader Mitch McConnell of Kentucky had been closing in on an agreement. Senate Democrats leaving a party meeting today blamed House Speaker John Boehner for undercutting the talks between Reid and McConnell. Boehner’s plan, which he is still developing, contains policy conditions Democrats have rejected.

U.S. borrowing authority is set to lapse on Oct. 17.

“There’s a growing realization that government gridlock could cause some serious economic damage,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

The House and Senate plans would both fund the government through Jan. 15, 2014, and suspend the U.S. debt limit until Feb. 7. A House vote as soon as tonight would test whether Republicans are willing to raise the borrowing authority and end the shutdown without major changes to a 2010 health-care law.

Iran Negotiations

Prices also fell as Iranian proposals to end a decadelong standoff as two days of negotiations with the U.S., U.K., France, Germany, Russia and China started in Geneva. Iran is demanding a relaxation of the sanctions against its oil exports.

“If Iran were to have its sanctions lifted, it would certainly cause prices to deteriorate by $10 on that alone,” said Tom Finlon, director of Energy Analytics Group LLC based in Jupiter, Florida.

Iran has offered tighter monitoring of its nuclear program within a six-month period to verify it’s not pursuing atomic weapons. The talks with the other countries, collectively nicknamed the P5+1, ended at 5 p.m. Geneva time and will resume tomorrow.

The negotiations are the first since an April round that stalled. They follow a telephone conversation last month between Iranian President Hassan Rouhani, who took office in August, and President Barack Obama -- the highest-level contact between the two countries’ leaders since the 1979 Islamic Revolution.

Brent may slip below $100 a barrel for the first time since June should discussions on Iran’s nuclear program lead to the easing of sanctions, according to a Bloomberg survey. The possibility for a revival of Iranian oil exports coincides with Saudi Arabia producing at the fastest pace in three decades and the U.S. pumping the most crude since 1989.

Grangemouth Refinery

Ineos Group Holdings SA said it’s shutting down the 210,000-barrel-a-day Grangemouth refinery in Scotland before a labor strike that could halt flows from the Forties Pipeline System, used to ship 45 percent of the U.K.’s North Sea oil output.

Grangemouth supplies power and steam to BP Plc (BP/)’s neighboring Kinneil processing plant, which handles oil from the Forties Pipeline System. The FPS network is scheduled to load 387,000 barrels a day of crude in October, according to a shipping program obtained by Bloomberg. Crude is gathered from more than 80 fields, BP data show.

Forties is the most abundant and typically the cheapest of the four North Sea crudes used to set the Dated Brent benchmark. The other grades are Brent, Oseberg and Ekofisk.

Implied volatility for at-the-money WTI options expiring in December was 22.1 percent, up from 21.1 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 539,822 contracts as of 4:10 p.m. It totaled 440,033 yesterday, 24 percent lower than the three-month average. Open interest was 1.84 million contracts.

To contact the reporter 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

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