Brent eases towards $111 on China economy, U.S. budget crisis

By Jacob Gronholt-Pedersen

SINGAPORE (Reuters) - Brent futures edged lower towards $111 per barrel on Monday after an unexpected decline in China's exports, while a looming deadline for the U.S. debt ceiling added to worries about the outlook for oil.

Weekend talks to avert a U.S. debt default showed signs of progress on Sunday, but there were still no guarantees that a government shutdown was about to end or that default would be avoided.

Underscoring the urgency of resolving the impasse, both the Senate and House of Representatives are scheduled to be in session on Monday, even though it is the Columbus Day holiday.

"Default is unlikely to happen, in our view. But if there's no deal over the next few days, it will definitely cause some downward pressure on oil as market confidence weakens," said Chee Tat Tan, an investment analyst at Phillip Futures in Singapore.

"We think a steep decline is unlikely, because oil will still be supported by winter demand for heating oil in the United States and a weak dollar," said Tan.

Brent futures fell 11 cents to $111.26 per barrel as of 0636 GMT. The benchmark has gained $3.32 in the two weeks since the U.S. government partially shut down on October 1.

U.S. oil was down 10 cents at $101.92. The contract has lost 12 cents since October 1, widening the gap between the two benchmarks to $9.34 per barrel, as the U.S. budget crisis has weighed more heavily on its domestic contract than on Brent.

CHINA EXPORTS

Failing to raise the debt ceiling would leave the world's biggest economy unable to pay its bills in coming weeks.

In a sign that the government shutdown has undermined Americans' outlook on the economy, consumer sentiment in the United States deteriorated in October to its weakest in nine months, the Thomson Reuters/University of Michigan's preliminary reading showed on Friday.

An unexpected decline in Chinese exports in September also weighed on oil prices. Exports fell an annual 0.3 percent in September versus market forecasts of a rise of 6 percent, reflecting weak global demand and defying a recent slew of data that pointed to a stabilising Chinese economy.

Nevertheless, data released over the weekend showed China's imports of crude oil rebounded in September to a record high. Average imports of crude in September stood at 6.25 million barrels per day, up 28 percent on the year and topping the previous record of 6.15 million bpd set in July.

"While the rebound was in part due to restocking and pre-holiday front-loading, underlying demand will likely remain healthy in the fourth quarter on year-end manufacturing activity," Sijin Cheng, commodity analyst at Barclays in Singapore, said in a note.

Chinese GDP data will be released on Friday.

The Organization of the Petroleum Exporting Countries (OPEC) has no plans to either increase or decrease output when the cartel meets in December, UAE energy minister Suhail bin Mohammed al-Mazroui said on Sunday.

"There is no sign or something that we can tell you today to say we are increasing or decreasing the quota," Mazroui told Reuters. "But what is certain is we will ensure the market is well supplied."

(Reporting By Jacob Gronholt-Pedersen; Editing by Alan Raybould, Richard Pullin and Michael Perry)