OilBarrelCorbisBarbaraDavidson460Oil prices ended lower on Tuesday and extended losses after the market closed as U.S. politicians continued battling over how to overcome a budget impasse that shut down Federal agencies and programs.

The U.S. government began a partial shutdown on Tuesday for the first time in 17 years, which is largely expected to crimp demand in the world’s largest oil consumer as nearly one million workers go without pay.

While analysts predicted a swift end to the government shutdown, commodity markets were less certain. Gold lost nearly 3 percent on speculation of forced liquidation by a distressed commodities fund and selling related to fund rebalancing.

Copper fell to its lowest in a week, while U.S. equity indexes ended the day higher.

The White House scoffed as the Republican-led U.S. House of Representatives offered legislation that would fund parks, veterans and the District of Columbia. U.S. Senate Democratic leader Harry Reid said Republicans must agree to open the government before Democrats would consider their latest offer to end the budget stalemate.

“The market continues to retreat until it figures out what this shutdown means,” said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut.

Expectations that crude oil inventories rose last week also put downward pressure on the market, McGillian said.
Data from the American Petroleum Institute showed that oil inventories rose by 4.55 million barrels last week, more than expected and prices slightly dropped. Stocks at U.S. oil hub Cushing, Oklahoma fell 83,000 barrels, the API said.
Brent crude settled 43 cents lower at $107.94 after trading as low as $106.81. It was trading 79 cents lower at $107.58 at 4:54 p.m. EDT (1654 GMT).

U.S. crude oil ended the day 29 cents lower at $102.04 a barrel, after dropping to a low of $101.06. It was last trading at $101.61.
U.S. gasoline futures dropped to their lowest levels since November 2012 at $2.5723 a gallon and settled at $2.6106.

Both U.S. and Brent oil pared losses late in the session as traders bought contracts to cover short positions. Traders who rode prices down began exiting positions around 2 p.m. EDT (1800 GMT), once U.S. oil prices failed to break the previous session low of $101.05, said Rich Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.

“For momentum traders playing the short side, when it stops going down, we get out,” he said.

U.S. manufacturing data was strong and could help put a floor under prices going forward, though it is a backward looking indicator, said Michael Lynch, an oil analyst and president of consultancy Strategic Energy & Economic Research Inc in Winchester, Massachusetts.

“What’s happening is still the shutdown and you’ll have something like 1 million people without paychecks,” he said.

Investors are also waiting on U.S. government oil inventory data still expected at 10:30 a.m. EDT on Wednesday.

The U.S. Energy Information Administration is expected to show that U.S. commercial crude oil inventories rose by 2.3 million barrels and that gasoline stockpiles fell, according to a preliminary Reuters poll.

The agency said it has enough resources to operate until around Oct. 11.
Information from Reuters was used in this report.