Brent futures edged below $109 a barrel this morning as oil production resumed in the Gulf of Mexico after a tropical storm, while lingering concerns over the US government shutdown clouded the outlook for demand.
Tropical Storm Karen had prompted producers to shut in nearly two-thirds of oil output in the Gulf of Mexico. But it was downgraded to a tropical depression late on Saturday, with production starting to return to normal by the end of the weekend.
Brent crude had eased 54 cents to $108.92 a barrel by 06.47 GMT. The benchmark ended higher last week, snapping a three-week losing run. US crude traded 70 cents lower at $103.14 a barrel, after ending last week up 0.9 per cent.
"There are no bullish or bearish factors to drive the market in either direction until we hear significant news out of the United States," said Yusuke Seta, a commodity sales manager at Newedge in Tokyo.
“Most oil traders are lost in the market. They are just waiting to see how the oil market will react.”
He was referring to the nearly week-long US budget impasse and mounting concern it could undermine moves to increase the country’s borrowing limit by an October 17 deadline, raising the possibility of a sovereign debt default.
Republican house speaker John Boehner yesterday vowed not to raise the US debt ceiling without a "serious conversation" about what is driving the debt, while Democrats said it was irresponsible and reckless to raise the possibility of a US default.
“We still believe the US congress will come to an agreement before October 17,” said Newedge’s Seta. Brent prices are unlikely to slip below $107.50 a barrel or rise above $112 a barrel, according to Newedge.
In the Gulf of Mexico, BP, Marathon Oil, and Chevron were returning workers to offshore facilities by helicopter after earlier evacuations, while other companies were also working to restore operations. The Gulf accounts for about 1.3 million barrels a day, nearly a fifth of US oil output.
A consortium developing Kazakhstan’s giant Kashagan oilfield in the Caspian Sea resumed production on Sunday. The offshore field - one of the world’s biggest oil finds in decades - was launched on September 11, but work was halted on September 25, after a gas leak was detected.
Combined with higher supply from Libya, Iraq and North America, increases in global oil production could outpace demand growth by as much as 400,000 barrels per day (bpd) in the fourth quarter, according to Barclays analyst Kevin Norrish. Most of those barrels are likely to go into storage, he said.
“We lacklustre product demand growth beyond any seasonal increase, and refining margins remain extremely poor, which will not be helped by the end of the autumn refinery maintenance in late October,” Mr Norrish said in a report.
A weakening greenback helped limit losses as it makes it cheaper for importers to buy dollar-priced oil using their own currency. The dollar eased 0.1 per cent against a basket of major currencies, within striking distance of an eight-month trough hit last week.
