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 Benchmark oil for November delivery dropped 54 cents to $102.33 a barrel on the New York Mercantile Exchange. Oil fell as low as $101.05 before recovering. Stocks declined, as did gold and other metals.
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 seemed far off as the White House and Republican lawmakers still disagree sharply on spending cuts and other key budget issues.
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 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.
After climbing to over $110 in late August, the price of oil has fallen as diplomatic efforts surrounding Syria and Iran eased concerns about Middle East supplies.
Meanwhile, U.S. drivers are catching a break at the gas pump. The average price for a gallon of gasoline fell 19 cents in September, the biggest monthly drop since last October, when it fell 26 cents, according to AAA. At $3.40, the nationwide average is the lowest it has been since Jan. 30.
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