WTI Crude Falls to 3-Month Low as U.S. Government Shuts

West Texas Intermediate fell to the lowest level in almost three months as the U.S. government began its first partial shutdown in 17 years, threatening to slow the economy and curb fuel use.

Futures dropped 0.3 percent after lawmakers failed to approve a funding bill. No further negotiations were immediately planned and both sides still disagree over raising the nation’s debt ceiling to avoid a first-ever default after Oct. 17. A government report tomorrow may show crude supplies rose last week as refineries idled units for seasonal maintenance, according to a Bloomberg survey.

“We would probably be down if there was no government shutdown,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “It’s hard to determine how much of this move is due to the budget impasse and how much is a result of bearish fundamentals. There’s plenty of supply, demand is weak and the shutdown should make it weaker.”

WTI crude for November delivery fell 29 cents to $102.04 a barrel on the New York Mercantile Exchange, the lowest settlement since July 3. The volume of all futures traded was about 23 percent below the 100-day average at 4:58 p.m.

Prices dropped after the American Petroleum Institute reported inventories rose 4.55 million barrels last week. The November contract decreased 69 cents, or 0.7 percent, to $101.64 a barrel in electronic trading at 4:58 p.m. It was at $101.84 before the report was released at 4:30 p.m.

Brent oil for November settlement slipped 43 cents, or 0.4 percent, to end the session at $107.94 a barrel on the London-based ICE Futures Europe exchange. The European benchmark closed at $5.90 premium to WTI, down from $6.04 yesterday.

Economic Growth

A federal government shutdown may cut fourth-quarter U.S. growth as much as 1.4 percentage points, economists from Moody’s Analytics Inc. to Economic Outlook Group LLC forecast. The nation is expected to account for 21 percent of global oil demand this year, according to the International Energy Agency.

The U.S. Treasury Department has said its ability to borrow will end on about Oct. 17 unless the $16.7 trillion debt ceiling is increased. The U.S. won’t have enough money to pay all of its bills at some point from Oct. 22 to Oct. 31 without action by Congress, according to the Congressional Budget Office.

“Oil is moving lower because of fears that the budgetary impasse will have knock-on effects on the economy and consumer demand,” said Jason Schenker, president of Prestige Economics LLC in Austin. “We’re in the refinery turnaround season, so the market would be under pressure even without the shutdown.”

U.S. Stockpiles

U.S. crude inventories probably rose 2.5 million barrels last week, according to the median estimate of 12 analysts in the Bloomberg survey. The refinery utilization rate fell to 89.3 percent from 90.3 percent the prior week, the survey showed. Units are often idled in October for maintenance as attention shifts from gasoline and before heating oil demand peaks.

Gasoline stockpiles are projected to decline by 700,000 barrels in the report from the Energy Information Administration, the Energy Department’s statistical arm.

The government shutdown which began at midnight won’t affect the release schedule, Jonathan Cogan, an EIA spokesman in Washington, said yesterday in an e-mailed statement.

WTI dropped the last three weeks as tension between Iran and the U.S. eased and the likelihood of a U.S.-led attack on Syria receded. President Barack Obama and Iran’s President Hassan Rouhani spoke by phone on Sept. 27 about the Islamic Republic’s nuclear program the first time leaders of the two countries have spoken directly since 1979 Iranian revolution.

‘Headline Bubbles’

“We had a good run up in August on the geopolitical headlines and now we’re seeing that disappear,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “There’s less of a risk of us lobbing a missile at Syria and the Iranians are making overtures. There’s always going to be a big drop when you have one of these headline bubbles and the headlines stop coming.”

Crude production in the Organization of Petroleum Exporting Countries crude rose 43,000 barrels to an average 31.082 million barrels a day in September, the most in 10 months, a Bloomberg survey of oil companies, producers and analysts showed.

U.S. crude output reached 7.83 million barrels a day in the week ended Sept. 13, the most since May 1989, the EIA said. A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies in shale formations in the central U.S.

Shutdown Worry

“With the government shutdown, peace breaking out in the Middle East and rising production, there’s no reason to be bullish oil,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “The worry about the shutdown is that it will be protracted.”

Implied volatility for at-the-money WTI options expiring in November was 20.9 percent, down from 21.5 yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 428,824 contracts as of 4:58 p.m. It totaled 443,262 contracts yesterday, 28 percent below the three-month average. Open interest was 1.86 million contracts.

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