Crude slides as shutdown threatens fuel demand

US light crude has fallen today for the third time this week, lowered by fears that the impasse in Washington could constrain the economy and hurt demand.

November crude futures had fallen 0.75% by late in the New York open outcry session to $103.31 a barrel.

The price of US light crude oil has only gained on one day so far this week, which was yesterday when it hit a two-week high, leaping as much as 2% after TransCanada signalled its intention to complete the southern leg of its Keystone XL pipeline by the end of October. Completion of the pipeline should help to diminish stockpiles at Cushing, Oklahoma, the price settlement point for US crude oil futures.

The failure of a face-to-face discussion between President Obama and leaders in Congress to deliver any progress in the budget stalemate has pushed prices lower today though, with fears now that the shutdown could last a lot longer than many had originally anticipated, which has negative implications for the economy and for oil demand. A prolonged shutdown could make a serious dent in GDP growth.

Because the US is the world’s largest consumer of oil, accounting for as much as 20% of global usage, any slowdown in the US economy will have a pronounced effect on oil consumption and therefore oil prices.

The oil price was supported earlier in the day as news came in regarding Tropical Storm Karen which is brewing in the Gulf of Mexico. The storm is forecast to intensify to near-hurricane levels tomorrow, and a number of hurricane watches have been put in place along the US coast from Louisiana to Florida. Karen is predicted to make landfall as a strong tropical storm near the Alabama-Florida state line in the next few days.

Non-essential workers have begun to be evacuated from many oil rigs in the Gulf, which accounts for upwards of 20% of US crude output.

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