Oil Falls for Third Week on U.S. Budget Impasse
West Texas Intermediate tumbled for a third week on forecasts that the U.S. budget impasse may hurt growth in the world’s largest oil-consuming country and as easing tension in Syria reduced supply concerns.
Prices fell 16 cents. The Senate voted today to finance the government through Nov. 15 after removing language to defund the health-care law, putting pressure on the House to avoid a federal shutdown set to start Oct. 1. The United Nations Security Council was set to consider a resolution today to eliminate Syria’s chemical weapons. Oil gained earlier on a strike decision by workers at Scotland’s sole oil refinery.
“There is certainly a lot of concern amongst traders about what this potential shutdown could mean for the market,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We have eliminated the Syria premium. None of those things are good for oil prices.”
WTI for November delivery settled at $102.87 a barrel on the New York Mercantile Exchange. Volume of all futures was 24 percent below the 100-day average at 3:41 p.m. Prices lost 1.7 percent this week. They are up 6.5 percent in the third quarter and 12 percent this year.
Brent for November settlement dropped 58 cents, or 0.5 percent, to $108.63 a barrel on the London-based ICE Futures Europe exchange. Futures decreased 0.6 percent this week. Volume was 13 percent lower than the 100-day average. Brent’s premium to WTI was $5.76, down from yesterday’s $6.18.
The Senate, by a vote of 54-44, passed the stopgap spending measure and sent it back to the House. The section of the measure to defund President Barack Obama’s signature health-care law, which was backed by Republicans, was defeated by the same margin. It’s uncertain if the chambers can strike a deal before funding authority expires on Oct. 1. Democrats control the Senate, and Republicans control the House.
Mark Zandi of Moody’s Analytics Inc. estimates a three- to four-week shutdown would cut U.S. economic growth by 1.4 percentage points. Moody’s projects a 3 percent rate of growth in the fourth quarter without a closure.
A two-week shutdown starting Oct. 1 could cut growth by 0.3 percentage point to an annualized 2.3 percent rate, according to St. Louis-based Macroeconomic Advisers LLC.
“The budget wrangling is a big deal,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “It put a damper on everything, and oil is not going to escape that.”
The Standard & Poor’s 500 Index dropped as much as 0.7 percent, extending a weekly decline.
The U.S. used about a fifth of the world’s oil in 2012, according to BP Plc (BP/)’s Statistical Review of World Energy.
Russian UN ambassador Vitaly Churkin told reporters in New York yesterday that the U.S. and Russia had submitted a draft plan to disarm Syria of chemical weapons to the executive council of the Organization for the Prohibition of Chemical Weapons in the Netherlands.
While the document authorizes the Security Council to implement punitive measures, it doesn’t threaten the automatic use of force against Syria, as the U.S. and its European allies had wanted.
WTI rose to a two-year high on Aug. 28 amid concern that a U.S.-led assault against Syria would lead to a disruption of Middle East oil exports. The region accounted for 35 percent of global oil output in the first quarter of this year, according to the International Energy Agency.
Crude rose earlier as union workers at PetroIneos’s 210,000-barrel-a-day Grangemouth refinery in Scotland voted in favor of strike action at the plant, citing treatment of a senior union representative.
The Bloomberg Dollar Index dropped as much as 0.4 percent. A weaker dollar increases oil’s investment appeal.
Implied volatility for at-the-money WTI options expiring in November was 19.8 percent, down from 20.2 yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 417,457 contracts as of 3:42 p.m. It totaled 381,036 contracts yesterday, 38 percent below the three-month average. Open interest was 1.87 million contracts.
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