Crude touches 12-week low

The price of crude oil today reached its lowest level in nearly three months, as the prospect of a partial government shutdown casts a shadow over the demand outlook.

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.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.