LONDON — Brent crude fell more than 1% to below $108 a barrel on Monday as oil production resumed in the Gulf of Mexico after a tropical storm, while concern over a US government shutdown clouded the outlook for demand.
Tropical Storm Karen led producers to shut nearly two-thirds of oil output in the Gulf of Mexico last week. It was downgraded to a tropical depression on Saturday, with production starting to return by the end of the weekend.
Brent fell $1.57 to a low of $107.89 a barrel before recovering slightly to trade around $108.10 by 9.05am GMT. The benchmark ended higher last week, snapping a three-week losing run.
US crude dropped $1.34 to $102.50 a barrel.
"Oil production in the Gulf of Mexico is gradually returning to normal levels after Karen weakened," Commerzbank senior oil and commodities analyst Carsten Fritsch said in Frankfurt.
"Abundant supplies mean the market has little to worry about now that the storm has passed."
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 of Mexico accounts for about 1.3-million barrels a day, nearly a fifth of US oil output.
Mr Fritsch said oil demand could be curbed by the row over the US budget that has shut parts of the US government.
Economists are increasingly concerned that the row could prevent moves to raise the country’s borrowing limit by an October 17 deadline, raising the possibility of a sovereign debt default.
Brent ‘unappealing’
US Republican house speaker John Boehner vowed on Sunday not to raise the US debt ceiling without a serious discussion on what was driving the debt, while Democrats said it was irresponsible to raise the possibility of a US default.
A consortium developing Kazakhstan’s giant Kashagan oilfield in the Caspian Sea has resumed production. The offshore field — one of the world’s biggest oil finds in decades — was launched on September 11 but work halted on September 25, after the discovery of a gas leak.
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 a day in the fourth quarter, according to Barclays analyst Kevin Norrish.
Most of those barrels were likely to go into storage, he said.
"We (expect) 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.
Morgan Stanley oil analyst Adam Longson said rising crude loadings in Russia, West Africa and the North Sea also suggested a weak outlook for crude.
"Despite short-term bullish events, we find Brent’s risk-reward unappealing heading into (the fourth quarter of) 2013. A combination of peak crude demand, supply outages and geopolitical concerns should support the Brent market," Mr Longson said.
