Oil extends losses as U.S. government shutdown continues, API data

Both West Texas Intermediate and Brent benchmarks continued to retreat on Wednesday as President Barack Obama and congressional Republicans couldnt resolve Tuesdays standoff which lead to a partial government shutdown after Congress failed to pass a budget for the 2014 fiscal year. A private report by the industry-funded American Petroleum Institute on Tuesday showed an increase in both crude and motor gasoline inventories.

On the New York Mercantile Exchange, WTI crude for delivery in November fell by 0.40% to $101.63 per barrel at 7:14 GMT. Prices held in range between days high of $101.84 and low at $101.44, near yesterdays three-month bottom. Light, sweet crude plunged 0.7% on Tuesday and extended its weekly decline to over 1.2% following Wednesdays fall.

Meanwhile on the ICE, Brent futures for November settlement slipped 0.21% to $107.71 a barrel at 7:13 GMT. Prices varied in a narrow range between $107.45 and $107.76 per barrel. The European benchmark declined by 0.5% on October 1 and extended its weekly loss to 0.7% following Wednesdays retreat.

Oil prices continued to fall as opposing U.S. lawmakers remained in a deadlock after they failed to pass a budget for the 2014 fiscal year before the October 1 deadline. This led to a partial government shutdown, which left hundreds of thousands of state employees on unpaid leave, curbing oils demand prospects in the worlds biggest consumer.

Jonathan Barratt, chief executive of commodity research firm BarrattBulletin in Sydney, said for Reuters: “Its not so much the fact that you have all these federal workers not consuming. Its the other 99 percent of the population that are losing confidence in the people in government and their ability to do a good enough job. And thats going to hurt demand.”

Putting further pressure on oil, the first high-level talk in three decades between the presidents of the United States and Iran was held on Friday. President Barack Obama and recently elected President Hassan Rohani conducted a 15-minute telephone conversation via interpreters and expressed their mutual political will to rapidly solve the nuclear issue.

The world’s six major powers will meet Iranian officials in Geneva on October 15-16 to discuss Iran’s nuclear intentions.

Another OPEC member, Libya, continued to recover its oil output after protesters shut oilfields and export terminals, which cut production to a tenth of its 1.6 million bpd pre-civil war capacity in the beginning of September. Libyan Oil Minister Abdulbari Al-Arusi said at at Oil & Money conference in London that the African country, which holds the continent’s biggest crude reserves, is currently producing 700 000 barrels of oil per day, up from last week’s 580 000, and that restoring production is a “political” issue, not a technical one.

“All the premium risk that was built into the oil market has evaporated. The bullish sentiment is just not there any longer,” Barratt said.

Inventories data

The oil market was also pressured amid expectations for a drop in crude inventories, which was confirmed by the American Petroleum Institute on Tuesday. The industry-funded APIs data showed that U.S. crude stockpiles rose by 4.55 million barrels last week. Motor gasoline inventories increased by 3.26 million barrels, while distillate fuel supplies fell by 1.57 barrels.

APIs data however is considered as less reliable than EIAs statistics as it is based on voluntary information from operators of refineries, pipelines and bulk terminals. According to a Bloomberg survey of analysts, government data may show today that U.S. crude inventories rose by 2.5 million barrels last week, while gasoline stockpiles probably fell by 700 000 barrels. Distillate fuel inventories are projected to have declined by 700 000 barrels. Refinery utilization is expected to have fallen to around 89% from 90.3% in the preceding week.

“Fiscal issues in the U.S. continue to be a headline, while inventory levels are increasing,” said Barrat. “Oil remains under pressure.”