Brent drops further below $108
Singapore, October 2, 2013
Brent crude extended losses below $108 on Wednesday on concerns the US government shutdown would reduce demand for commodities, while expectations that US oil inventories rose last week also put pressure on prices.
Wrangling in the United States between President Barack Obama and congressional Republicans has forced the first government shutdown in 17 years. The shutdown has left hundreds of thousands of federal employees on unpaid leave and is expected to crimp demand in the world's largest oil consumer.
"It's not so much the fact that you have all these federal workers not consuming. It's the other 99 per cent of the population that are losing confidence in the people in government and their ability to do a good enough job," said Jonathan Barratt, chief executive of commodity research firm BarrattBulletin in Sydney.
"And that's going to hurt demand."
Brent crude for November fell 39 cents to $107.55 a barrel by 0403 GMT. The benchmark has fallen more than 8 per cent from a six-month high hit in late August.
US crude was at $101.53, down 51 cents, extending losses for a fourth straight session.
Oil prices have come tumbling down over the past month as supply has improved, with Libya ramping up output, while tensions over Syria and Iran eased.
"All the premium risk that was built into the oil market has evaporated. The bullish sentiment is just not there any longer," said Barratt. He forecasted Brent prices to fall to $93-$94 per barrel in the first quarter of next year, with WTI dropping to $85 per barrel.
Commodities such as gold and copper fell sharply on Tuesday as the uncertain situation in the US caused investors to sell and discouraged others from buying.
Other risk assets have shrugged off the shutdown with equities gaining as investors bet US government operations would soon resume. Sentiment was also supported by robust US manufacturing activity, which expanded at its fastest pace in almost 2-1/2 years.
US OIL STOCKS
Oil prices were also hit by expectations of a build in US crude inventories last week. The US Energy Information Administration is expected to show that crude stocks rose by 2.3 million barrels in the week ended September 27, according to a Reuters poll.
In the previous week, EIA data showed crude stocks in Cushing, Oklahoma, the delivery point for the US oil futures contract, fell for the 12th consecutive week, but the pace of the drawdown slowed.
Data from the American Petroleum Institute, an industry group, showed that oil inventories rose by 4.6 million barrels last week. Stocks at Cushing fell 83,000 barrels, the API said.
The EIA data will be released on Wednesday at 1430 GMT. The EIA has said that despite the government shutdown, data will be released normally this week and next. - Reuters