Crude Rises as Tropical Storm Karen Curbs Gulf Output

West Texas Intermediate rose as Tropical Storm Karen pushed through the Gulf of Mexico to the U.S. coast, threatening crude production in the region.

Prices gained 0.5 percent. Karen will make landfall early Oct. 6 on the southeastern tip of Louisiana, according to the National Hurricane Center. BP Plc is shutting in all its oil and natural gas output in the Gulf, and LOOP LLC will suspend tanker operations at noon. The U.S. government shutdown entered a fourth day as House Speaker John Boehner said that he won’t allow the U.S. to default on its debt.

“The market is paying respect to the storm,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s not going to be a hurricane, but you can’t totally dismiss the storm. It could definitely impact production. People are still worried about the budget standoff.”

WTI crude for November delivery increased 53 cents to settle at $103.84 a barrel on the New York Mercantile Exchange. The volume of all futures traded was about 39 percent below the 100-day average at 3:34 p.m. Prices rose 0.9 percent this week and are up 13 percent this year.

Brent oil for November settlement climbed 46 cents, or 0.4 percent, to end the session at $109.46 a barrel on the London-based ICE Futures Europe exchange. Futures were 29 percent below the 100-day average. The European benchmark was at a $5.62 premium to WTI at today’s close, down from $5.69 yesterday.

Tropical Storm

Karen, with top sustained winds of 50 miles (80 kilometers) per hour, was about 240 miles south-southwest of the mouth of the Mississippi River before 2 p.m. New York time, moving north-northwest at 9 mph, the NHC said in an advisory. This is down from wind speeds of 60 mph earlier today.

BP halted output at all company-operated facilities in the deepwater, the company said in a statement today on its website. LOOP, the Louisiana Offshore Oil Port, is the only U.S. port capable of offloading ultra-large crude carriers.

Exxon Mobil Corp. curtailed output by 1,000 barrels of oil equivalent a day and pulled nonessential personnel from offshore operations in Karen’s path. Anadarko Petroleum Corp. shut and evacuated the Independence Hub and three other platforms in the central and eastern Gulf. Chevron Corp., Enterprise Products Partners LP, Marathon Oil Corp. and Royal Dutch Shell Plc were also moving personnel out of the system’s path.

The Gulf Coast 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.

Potential Default

The U.S. made little progress in reopening the government, raising the prospect of a prolonged standoff over the shutdown and raising the $16.7 trillion debt limit. The closure has delayed the release of the Labor Department’s monthly payroll report, which normally comes out the first Friday of each month.

“We are staring to fly blindly,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The longer this goes on, the more dangerous things get.”

Boehner said he will reject Obama’s call for a so-called “clean” debt-limit increase free of policy conditions. The Ohio Republican also said the way to reopen the government is for Democrats to negotiate with him and accept changes that would produce “fairness” under the Affordable Care Act.

“Prices retreated on two things, Boehner’s statements and the downgrade of Karen,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “He made it clear he’s standing firm. His statements just happened to coincide with the storm downgrade.”

Economic Risk

Federal Reserve Bank of San Francisco President John Williams estimated yesterday a two-week government halt would shave 0.25 percentage point off fourth-quarter economic growth.

Pacific Investment Management Co.’s Bill Gross and BlackRock Inc.’s Larry Fink said the stalemate between U.S. politicians will be resolved soon. The investors spoke yesterday at an event in Beverly Hills, California.

“The market is keeping its eye on the shutdown of the government,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “There is a lot of uncertainty. The storm is temporarily supporting the market.”

WTI will probably decline next week on concern that the political impasse may damp economic growth and energy demand, a Bloomberg survey showed. Eighteen of 30 analysts and traders, or 60 percent, forecast crude will drop through Oct. 11. Six respondents, or 20 percent, predicted an increase and six said that there would be no change.

Implied Volatility

Implied volatility for at-the-money WTI options expiring in November was 19 percent, down from 19.8 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 329,499 contracts as of 3:35 p.m. It totaled 538,850 contracts yesterday, 11 percent below the three-month average. Open interest was 1.88 million contracts.

“Nobody knows what to do,” O’Grady said. “Volume is very low. People are just sitting on their hands, which makes a lot of sense right now.”

Before it's here, it's on the Bloomberg Terminal.