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Drillers, traders left in the lurch by DC shutdown

Wednesday, 9 Oct 2013 | 12:04 PM ET
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The U.S. shutdown, already in its ninth day, may hit energy markets in ways both large and small if the impasse is prolonged.

Traders and energy observers are starting to get nervous about the possibility that market-moving energy data typically provided by the federal government will be held up. At a minimum, the unresolved political gridlock in Washington could leave a noticeable void in the data that normally help to shape futures markets, where weekly crude supply reports routinely move front-month Brent and West Texas Intermediate (WTI) contracts.

On Wednesday, crude sank after the Energy Information Administration reported an unexpected surge in oil stockpiles. An EIA spokesman told CNBC that information on next week's data would not be available until the end of the week—raising questions about how long reports will continue to become available while swaths of the federal government are unfunded.

Based on its contingency plan, the department has funding for operations only through Oct. 11.

Meanwhile, the Bureau of Land Management has already slapped a moratorium on oil and gas drilling lease auctions on federal lands. A BLM spokesperson told CNBC that a lease sale scheduled for next Wednesday in Santa Fe, N.M., has been postponed. "We will make a decision later this week regarding an Oct. 22 lease sale in Montana," the spokesperson added.

Ironically, a prolonged shutdown could deprive the government of a reliable source of revenue: Last year the federal government auctioned off more than 6 million acres to energy developers, pulling in more than $233 million, according to BLM data.

"Private-sector permits are where the sector is really going to feel it," said Richard Hastings, macro strategist at Global Hunter Securities. "Generally speaking, we're talking about the risk of delays and how long they last," which could take a toll on how companies decide where and when to invest in new drilling ventures, Hastings said.

Already slowing...and getting slower?

Crude oil inventories up 6.81M barrels
CNBC's Sharon Epperson reports gas inventories are up 149,000 barrels, a much bigger than expected increase.

Revenue from oil and gas leases fell 9 percent year over year in 2012. A protracted government shutdown could take an even greater toll this year.

Industry participants note that offshore drilling—which is leveling off after years of growing—should continue as normal. However, the mainland drilling that has fed a nascent U.S. energy boom this year and last could take a hit.

"Drilling on state and private lands—where the energy revolution is taking place—will continue," said a spokesman from the American Petroleum Institute, an oil industry trade group, in response to an email inquiry from CNBC.

In contrast, a prolonged shutdown could slow drilling on federal lands, which had already slowed before the deadlock in D.C. The institute spokesman cited Congressional Research Service data showing that, on federal areas where the federal government controls development, production over the 2009-2012 period was down 6 percent for oil and 21 percent for natural gas.

According to the BLM, the department is holding "several hundred oil and gas permitting requests that are not being acted on" due to the government shutdown.

By CNBC's Javier E. David and Sharon Epperson.

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