The price of oil fell sharply on Monday, to below $102 a barrel, amid concerns that U.S. political leaders might not be able to reach a deal on a federal budget needed to avoid a partial shutdown of the government.
By early afternoon in Europe, the benchmark oil contract for November delivery was down $1.36 to $101.51 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 16 cents to close at $102.87 a barrel on Friday.
The U.S. government will reach its borrowing limit, or debt ceiling, on Tuesday. If Congress doesn't raise that limit, the government won't be able to pay all its bills and some 800,000 of the 2.1 million federal employees will not go to work.
A lasting solution seems far off as the White House and Republican lawmakers still disagree sharply on spending cuts and other key budget issues.
"The economy will slow down, confidence will slide and demand for crude will be hurt," said Evan Lucas, analyst with IG in Melbourne. "There will be a real snowball effect if the partial shutdown goes ahead."
Goldman Sachs estimated that a three-week shutdown would slow the economy's annual growth rate in the October-December quarter by up to 0.9 percentage points. If so, the growth rate next quarter would be a scant 1.6 percent, compared with market expectations of a 2.5 percent growth.
Political uncertainty also surfaced in Italy, where Prime Minister Enrico Letta will face a confidence vote on Wednesday after ministers from Silvio Berlusconi's center-right bloc pulled out of the five-month government. Markets are concerned that key economic reforms will not be implemented if the government falls.
Outpatient ROBOTIC HYSTERECTOMY. Trust an experienced Robotic Surgeon.