Crude oil futures for November fell 0.7% to $102.1 a barrel by late in the New York pit-traded session, after earlier plummeting as low as $101.05 a barrel, the contract’s cheapest price since the beginning of July.
The new US fiscal year begins at midnight in Washington tonight and unless emergency legislation is passed by Congress to provide funds for the federal government before then, hundreds of thousands of government employees will be placed on temporary, unpaid leave. Only services deemed indispensable and those with dedicated funding would continue to operate.
Such a turn of events would inarguably hurt the US economy; the loss of earnings would dent consumer spending, which constitutes a large portion of GDP, and output woud dip from the number of workers being furloughed. Estimates are being reported that the shutdown could set back fourth-quarter GDP growth by as much as 1.4%.
Even if a last-minute deal can be agreed to avoid a shutdown, Washington will head into another, perhaps bigger, crisis almost immediately, with the Treasury estimating that the $16.7 trillion debt ceiling needs to be raised in the next few weeks. Failure to address this could result in the credit rating of the US being downgraded again.
The prospect of lower US growth and the potential damage to consumer confidence does not portend good things in terms of oil demand. Add improving geo-political stability to the mix, with relations between the US and Iran appearing to be improving, and the result is a lot of headwind for oil prices.