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Oil tumbles on US budget concerns

30 September 2013, 10:46 AFP

Singapore - Oil prices tumbled in Asian trade on Monday as a budget impasse in the United States threatens to shut down parts of the economy, analysts said.

New York's main contract, West Texas Intermediate for delivery in November fell $1.16 to $101.71 in mid-morning trade, while Brent North Sea crude for November was down 82 cents to $107.81.

Crude tracked losses on most Asian equity markets after the House of Representatives approved a Republican bill seeking to delay President Barack Obama's healthcare law.

With Democrats refusing to accept demands for cutbacks in the healthcare programme, there are fears that hundreds of thousands of US federal employees will be sent home from Tuesday.

Investors are also eyeing a more critical row over the US debt ceiling, which must be raised before mid-October, when the government runs out of money to pay its bills.

If the spending limit is not hiked, Washington will be unable to service its debt obligations and will in turn default. A similar stand-off in 2011 sent global markets sliding and led to a historic downgrade of the country's AAA sovereign rating by Standard & Poor's.

"The budget impasse in the United States is certainly creating uncertainty, but there is also hope among investors that there will be a last-minute save like the last time round," David Lennox, resource analyst at Fat Prophets in Sydney, told AFP.

DBS Bank said a forced shutdown of the US government could see the US Federal Reserve expanding its $85bn a month bond buying programme, instead of winding it down as expected.

"For now, the prospect of a weaker US economy is likely to weigh on equities and Asian currencies first," it said in a note.


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