WTI extends retreat on U.S. budget stalemate, Gulf storm activity supports

West Texas Intermediate fell for a fourth day in five as the U.S. government shutdown extended into a fourth day after Congress failed to pass a budget for the 2014 fiscal year before the October 1 deadline. Tropical storm Karen which is expected to reach hurricane strength on Friday forced oil producers to begin evacuating personnel from their platforms in the Gulf of Mexico, limiting losses.

On the New York Mercantile Exchange, WTI crude for delivery in November fell by 0.20% to $103.11 per barrel at 7:18 GMT. Prices held in range between days high and low of $103.25 and $102.89 a barrel respectively. Light, sweet crude plunged 0.6% on Thursday, a third daily decline in four, and trimmed its weekly advance to 0.2% after retreating on Friday.

Meanwhile on the ICE, Brent oil for delivery in November fell by 0.17% to $108.81 a barrel at 7:19 GMT and shifted in a narrow range between $108.93 and $108.60 per barrel. The European benchmark fell by 0.4% on Thursday but extended its weekly advance to 0.3% after gaining on Friday.

West Texas Intermediate crude extended yesterdays losses as the U.S. government shutdown entered a fourth day and is likely to extend into next week, leading to a much stronger negative impact on the U.S. economic growth. President Barack Obama failed to break through the budget talks impasse on Wednesday at a meeting with leaders of the Republicans and Democrats. Meanwhile, concern over a possible deadlock in the discussions for raising the nations debt limit on October 17 further damped market sentiment. A U.S. default would have much worse consequences for the U.S. economy and oil demand than the budget standoff, which caused nearly 1 million state employees to be put on unpaid leave.

The Treasury said in a report yesterday that a default caused by Congress failing to raise the debt ceiling would lead to a recession as bad as the 2008 financial crisis.

Chee Tat Tan, investment analyst at Phillips Futures in Singapore, said for Reuters: “The U.S. budget crisis is creating fear among investors. In addition, the upcoming debt ceiling negotiations are causing very negative market sentiment, because if manufacturing starts to drop, then demand for oil will stay unsupported.”

Meanwhile, further diplomatic progress between the U.S. and Iran also put pressure on the market. The U.S. could give Iran short-term sanctions relief if the Islamic republic provides concrete evidence that it is slowing its uranium enrichment program and sheds some light on its nuclear program.

Storm activity

Losses however remained limited after the National Hurricane Center reported on Thursday that a low-pressure area over the northeastern tip of the Yucatan Peninsula of Mexico had strengthened to a tropical storm named Karen and was moving north-northwestward at 17 kmh. The agency reported on Friday that Karen is 515 kilometers south of the mouth of the Mississippi River and has maximum sustained winds of up to 100 kmh. Karen is expected to be at hurricane strength later today and early Saturday.

According to the Energy Information Administration, the Gulf accounts for 23% of U.S. crude production, 45% of petroleum refining capacity and 5.6% of domestic natural gas output. Some oil producers already began evacuating non-essential personnel from their platforms. Anadarko Petroleum Corp. shut and evacuated three platforms and a hub in the central and eastern parts of the Gulf. Others have also begun to move personnel out of Karens path yesterday.

Market players will be watching closely for todays unemployment rate and non-farm payrolls data, which however may not be published amid the ongoing government shutdown. An Obama administration official announced earlier in the week that there might be a delay, providing the ADP employment change and initial jobless claims indicators out this week with more weight on current market sentiment.