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The government shutdown has been pressuring the price of crude oil this week, with market participants concerned that an extended impasse in the budget debate could constrain oil demand, but that downward price-pressure has been outweighed today by consideration of the potential impact on domestic oil output that Tropical Storm Karen might hold in store.
Based on the latest forecasts, Karen will not develop into a fully-fledged Hurricane, but oil companies operating in the Gulf of Mexico are not taking it for granted; the storm’s strongest sustained gusts have reached 60 miles per hour today and BP is temporarily shutting up shop on all of its oil and gas operations in the Gulf, while the Louisiana Offshore Oil Port has suspended tanker operations and Exxon Mobil has reduced ouput and evacuated non-essential personnel in the storm’s way.
Output from the Gulf Coast accounts for more than 20% of US total crude oil production and 5% of natural gas. It also houses close to half of all US refining activity by capacity.
November US light crude oil futures were up 0.4% by mid-afternoon in New York at $103.65 a barrel, only the second day this week that the contract has risen.
Although the storm is temporarily sustaining oil prices, the oil market is still susceptible to developments in Washington and should the shutdown drag on further, the downward pressure will likely reassert itself.