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Crude Declines as U.S. Edges Closer to Debt Default

West Texas Intermediate crude dropped as the U.S. neared a breach of the debt ceiling and production from the Gulf of Mexico resumed after a tropical storm.

Prices fell 0.8 percent. House Speaker John Boehner said the country could end up in default if President Barack Obama doesn’t negotiate over the Affordable Care Act, which Republicans want weakened or delayed. A partial U.S. government shutdown entered a seventh day. Companies including BHP Billiton Ltd. returned workers to platforms after Tropical Storm Karen passed through and broke up over Alabama.

“The market is refocusing on the government shutdown and the debt ceiling,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Worries about what could result from the shutdown have re-emerged. Karen has faded and oil companies are bringing production back online.”

WTI for November delivery slipped 81 cents to settle at $103.03 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 15 percent above the 100-day average for the time of day at 2:34 p.m. Prices climbed last week for the first time in four weeks as Karen forced production shutdown.

Brent for November settlement advanced 22 cents to $109.68 a barrel on the London-based ICE Futures Europe exchange. Volume was 16 percent above the 100-day average. The European benchmark was at a premium of $6.65 to WTI, up from $5.62 on Oct. 4.

Debt Limit

Boehner said yesterday in an interview on ABC’s “This Week” program that the House can’t pass an increase to the U.S. debt ceiling unless other provisions are part of the package. Obama has said the debt limit should be increased without conditions.

“We are not going to pass a clean debt limit,” Boehner said. “The votes are not in the House to pass a clean debt limit.”

Treasury Secretary Jacob J. Lew said the nation risks defaulting on its payments unless Congress increases the debt ceiling by Oct. 17.

Republicans have called for repealing or defunding Obama’s health-care law before agreeing to a new budget. The Obama administration has said it won’t negotiate with Republicans over funding the government or raising the debt ceiling, arguing that those are basic functions of Congress and shouldn’t be used as leverage.

Catastrophic Consequences

A government default could have catastrophic consequences that might last decades, the Treasury Department said in a report last week.

“The market is now starting to say that maybe those people are really stupid enough to drive us off the cliff,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

WTI also fell as BHP was resuming normal operations as it returned workers to platforms, the company said in an e-mailed statement yesterday. Anadarko Petroleum Corp. was also moving staff back, the company said. The Louisiana Offshore Oil Port resumed tanker loadings after suspending them because of Karen, Barb Hestermann, a spokeswoman, said by e-mail. LOOP is the only U.S. port capable of offloading ultra-large crude carriers.

Gulf Platforms

BP Plc’s oil and natural gas production remained shut in as the company worked to confirm platforms were able to operate safely. Marathon Oil Corp. said it resumed normal operations after the storm.

“Some of the concern over the tropical storm has been alleviated and oil production is coming back,” said Jacob Correll, a Louisville, Kentucky-based commodity analyst at Schneider Electric Professional Services, an energy management firm that manages more than $20 billion in companies’ annual energy spending.

Crude pared losses earlier after Reuters reported the Seaway pipeline, running to the Gulf Coast from Cushing, Oklahoma, resumed shipping after a brief stoppage, citing Genscape. Cushing is the delivery point for the U.S. oil futures contract.

Implied volatility for at-the-money WTI options expiring in November was 20.4 percent, up from 19.1 percent on Oct. 4, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 613,720 contracts as of 2:38 p.m. It totaled 365,043 contracts on Oct. 4, 39 percent below the three-month average. Open interest was 1.89 million contracts.

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