Brent falls below $108 on US jitters, Iran

Reuters
An engineer conducts routine checks on oil tanks at a refinery in Wuhan
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An engineer conducts routine checks on oil tanks at a refinery in Wuhan, Hubei province November 27, …

By Florence Tan

SINGAPORE (Reuters) - Brent oil fell more than $1 to below $108 a barrel on Monday and was headed for its first monthly decline since May, as tensions over Iran eased and a potential U.S. government shutdown clouded the outlook for demand.

Worries that a potential strike at a refinery in Scotland could disrupt North Sea crude supplies which underpin Brent prices however curbed losses in the benchmark.

Brent had slipped 92 cents to $107.71 a barrel by 0715 GMT, off the day's low of $107.43 but set for a 5.5-percent monthly drop. U.S. crude was down $1.14 at $101.73 a barrel, after hitting a nearly three-month low at $101.45.

"The key driver across commodities is the U.S. budget," said Timothy Radford, an analyst at investment firm Rivkin in Sydney. "A lot of risk assets have downward pressure placed on them unless we see some resolution (in the United States)."

Republicans and Democrats are locked in an impasse over funding which could see the U.S. government shut for the first time in 17 years.

Commodities and equity markets weakened as investors shifted toward safe havens such as the Japanese yen and Swiss Francs ahead of the U.S. funding deadline at midnight on Monday. The euro also softened against the U.S. dollar as the Italian government teetered on the edge of collapse.

"We expect this situation will play out as many similar situations have played out before - by pushing the issue to crisis level and achieving a very last-minute resolution - or a resolution immediately after the deadline has passed," Jason Schenker of U.S.-based consultancy Prestige Economics said in a note.

Elsewhere, major commodity-consumer China is starting to turn the corner though a firm rebound remains elusive. Domestic orders proved to be weaker than preliminary estimates suggested, a private survey showed.

A rise in Libya's oil output and easing tensions over Syria and Iran have also weighed on crude prices.

U.S. President Barack Obama and new Iranian President Hassan Rouhani spoke by telephone on Friday, the highest-level contact between the two countries in three decades and a sign that they are serious about reaching a pact on Tehran's nuclear programme.

"The fact that both presidents have spoken is quite a big breakthrough," Radford said. "That's quite positive in the reduction of tensions between Iran and the U.S., although it's negative for oil prices."

The U.N. Security Council agreed on a resolution to eradicate chemical weapons in Syria on Friday, averting punitive U.S. military action against Syrian President Bashar al-Assad's government.

In Libya, crude exports have risen above 580,000 barrels per day after western fields reopened this month, but oil export facilities in the east remain closed by protesters, a senior oil official said on Friday.

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