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Oil drops on fears over impact of US shutdown

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(Globalpost/GlobalPost)

Oil prices fell Wednesday on stubborn fears about the Washington shutdown, while traders digested data showing that China has surpassed the United States to become the world's top crude importer.

The market was meanwhile cautious before the latest weekly snapshot of American oil inventories.

New York's main contract, West Texas Intermediate for delivery in November dipped 13 cents to $103.36 a barrel.

Brent North Sea crude for November dropped 42 cents to stand at $109.74 per barrel in early afternoon London deals.

"The demand outlook continues to remain weak with the continuing government shutdown in the US seemingly no nearer to resolution, despite President Barack Obama agreeing to negotiate with Republicans upon resumption of the government and raising of the debt ceiling," said analyst Joe Conlan at British consultancy Inenco.

Oil dipped with little progress made in ending the bitter US government shutdown that has sparked fears of a chaotic debt default, analysts said.

With the partial US government shutdown in its second week, Obama said Tuesday he would not give in to demands from Republicans to make cuts to his healthcare law before they agree to a new budget and raise the country's borrowing limit.

However, he did say he would accept a short-term deal to lift the debt ceiling and reopen the government -- a move that would effectively postpone the crisis for a number of weeks.

Failure to lift the ceiling by a October 17 deadline will mean the government is unable to pay its bills or service its debts, causing a default that analysts have warned could send the world economy back into recession.

Later on Wednesday, the US government's Energy Information Administration (EIA) will publish its weekly report on US crude reserves.

On Tuesday, the EIA had revealed in a separate market report that China has become the world's top crude importer, leapfrogging the United States.

"China's steady growth in oil demand has led it to become the world's largest net oil importer, exceeding the United States in September 2013," the EIA said

The EIA added it forecasts this trend to continue through 2014.

China's net import of oil reached 6.3 million barrels per day (mbd) in September, compared to 6.24 mbd for the United States, where domestic shale oil has boomed in recent years while demand is flat.

China is the world's top overall energy consumer, but still uses less liquid fuels than the United States.

The EIA expects China's demand for liquid fuels to rise by 13 percent to 11 mbd, while US demand is expected to hover around 18.7 mbd, down from a record 20.8 mbd in 2005.

"It really has come as no surprise that China has now overtaken the US," added Inenco's Gary Hornby.

"US oil production is close to record high levels as a consequence of the US shale gas revolution, and the US economy has been struggling recently in comparison with China, which has seen the US rely less and less on oil imports to manage demand.

"With the Chinese economy growing at an annual rate of over 7.0 percent in recent years, oil demand is expected to continue to increase in the coming years, which could widen the gap further between the US and China in terms of the top oil importer as US indigenous oil production continues to grow.

"Nevertheless, the effect on prices regarding this shift has been minimal, with oil still hovering around the $110-per-barrel mark at the moment."

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http://www.globalpost.com/dispatch/news/afp/131009/oil-drops-fears-over-impact-us-shutdown