Oil slips towards $109 on U.S. shutdown

By Simon Falush and Alexander Winning

LONDON (Reuters) - Crude oil slipped to around $109 a barrel on Thursday on worries that a prolonged U.S. government shutdown would hurt demand in the world's biggest oil consumer.

President Barack Obama met with Republican and Democratic leaders in Congress to try to break a budget deadlock that has shut wide swaths of the federal government, but after more than an hour of talks no breakthrough emerged.

"The uncertainty with the U.S. shutdown doesn't help," said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland.

Brent crude slipped 10 cents to $109.09 a barrel by 0828 GMT, after settling $1.25 higher in the previous session. U.S. oil fell 43 cents to $103.67 a barrel, after ending $2.06 higher.

The lingering concerns ate into sharp gains the previous day on news that TransCanada Corp's Keystone XL Gulf Coast pipeline would start up by the end of the year.

The pipeline will ship crude from the delivery point of U.S. oil futures at Cushing, Oklahoma, to Texas. A glut of oil at Cushing has depressed prices.

FIRM DATA

Firm economic data in China, the world's second-largest oil consumer, and from the euro zone helped keep a floor under prices.

Activity in China's services sector expanded at the fastest pace in six months in September as demand grew, cementing a modest pickup in the world's second-largest economy.

The nascent recovery in euro zone businesses strengthened in September as order books filled at a faster rate and layoffs slowed to a trickle, surveys showed on Thursday, pointing to very mild growth in the third quarter.

U.S. Secretary of State John Kerry said the United States hopes to engage with the new Iranian administration, but Tehran must first prove it is willing to end the standoff over its nuclear weapons programme.

An easing of geopolitical risks in recent weeks has helped push oil from a peak of above $117 in late August.

Crude inventories in the United States rose sharply last week as refinery utilisation fell, while the drawdown at Cushing slowed.

(Editing by Dale Hudson)