The price of oil fell below US$103 a barrel Monday as a partial U.S. government shutdown entered a second week and crude production in the Gulf of Mexico got back on track after a storm system passed through.
By early afternoon in Europe, benchmark crude for November delivery was down $1.03 to US$102.81 a barrel in electronic trading on the New York Mercantile Exchange. The contact rose 53 cents to close at $103.84 on the Nymex on Friday.
The U.S. was forced to curtail government operations last week after a politically divided Congress failed to approve a short-term funding measure to allow the government to pay its bills past the end of its fiscal year on Sept. 30. As a result, 800,000 federal workers were furloughed and scores of non-essential services were halted. Prices were under pressure since energy would be needed less in a prolonged halt to government activities.
Now, Congress faces another deadline that could prove highly damaging to the U.S. economy if missed. The debt ceiling, also known as its borrowing limit, must legally be raised before Oct. 17. The U.S. Treasury estimates it will have $30 billion of cash on hand on that day, but the money will be exhausted quickly — government bills can run as high as $60 billion on a single day.
That means the government could default on its obligations to service its debt — which could lead to the first-ever default on government debt.
“There are still no signs of the U.S. budget dispute being resolved and this has left investors more wary of risks,” analysts from Commerzbank in Frankfurt said in a research note to clients.
Oil production, meanwhile, was returning to normal in the Gulf of Mexico, where late last week several companies took precautionary measures as Tropical Storm Karen approached. The storm dissipated without causing major damage.
“More than 60 per cent of the U.S. oil production in the Gulf of Mexico (was) shut down over the weekend as a precaution,” the Commerzbank analysts said.
Brent, the benchmark for international crudes, was down 82 cents to $108.64 on the ICE Futures exchange in London.
In other energy futures trading on Nymex, wholesale gasoline fell 1.97 cents to US$2.5879 a U.S. gallon (3.79 litres), heating oil lost 1.99 cents at US$2.9791 a gallon and natural gas rose 6.2 cents to $3.568 per 1,000 cubic feet.