Oil below $108 as US govt begins shutdown

Signs of a thawing in relations between the US and Iran also weighing on oil prices

The Marathon Oil   refinery in Garyville, Louisiana. Brent crude fell below $108 a barrel this morning  on worries a shutdown of the US government may crimp oil demand. Photo: Bloomberg

The Marathon Oil refinery in Garyville, Louisiana. Brent crude fell below $108 a barrel this morning on worries a shutdown of the US government may crimp oil demand. Photo: Bloomberg

Tue, Oct 1, 2013, 08:48

Brent crude fell below $108 a barrel this morning to trade near a 7-week low on worries a shutdown of the US government may crimp oil demand.

The US government has begun a partial shutdown for the first time in 17 years, potentially putting up to 1 million workers on unpaid leave, closing national parks and stalling medical research projects.

“The shutdown of the government would result in the decrease in demand for oil in the world’s top oil consumer, pressuring prices, as hundreds of thousands of government employees would be forced to stay home without any pay,” Teoh Say Hwa, head of investment at Phillips Futures wrote in a note.

Brent crude for November fell 70 cents to $107.67 a barrel by 0655 GMT. US crude was at $101.99, down 34 cents.

Oil prices have come under downward pressure in the past month as supply has improved, with Libya ramping up output while tensions over Syria and Iran eased.

“A lot of bull factors have been removed from the market,” said Ken Hasegawa, a commodity sales manager at Newedge Japan. “I can’t find any bullish factors for oil.”

Technical charts showed that US crude futures may fall to $100 after breaking a support level of $102, Mr Hasegawa said, adding that the next support level for Brent is at $105.85.

In China, weaker-than-expected growth in the manufacturing sector in September added to concerns that a nascent recovery in the world’s second largest economy may be foundering.

Signs of a thawing in relations between the United States and Iran also weighed on oil prices.

Obama and new Iranian president Hassan Rouhani spoke by telephone last week in the highest-level contact between the countries in more than three decades, fuelling hopes for a resolution of Iran’s decade-old nuclear standoff with the West.

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

Investors are also looking ahead to US oil inventories data on Wednesday. The US Energy Information Administration (EIA) said it has enough resources to operate approximately through October 11 in the event of a government shutdown.

Reuters