* Gulf of Mexico output returning to normal after storm
* Concerns over U.S. debt default cloud demand outlook
(Updates prices to settlement)
By Anna Louie Sussman
NEW YORK, Oct 7 Crude oil futures on both sides
of the Atlantic pared losses on Monday after a sharp drop in
earlier trade, following a report that a key pipeline delivering
crude oil from Cushing, Oklahoma, had resumed shipping after an
Operations of the Seaway oil pipeline, through which crude
oil flows from Cushing to Gulf Coast refineries, resumed after a
brief shutdown, industry intelligence firm Genscape reported
early on Monday. Cushing is the delivery point for the U.S. oil
"There were a lot of concerns that the Gulf Coast was really
in trouble" if Cushing's oil was unavailable, and with
production curtailed in the Gulf of Mexico because of a tropical
storm, said Phil Flynn, energy analyst at Price Futures Group in
Once Seaway was reported to be back online, Flynn said, the
market was "pricing in relief" as WTI cut its losses.
U.S. crude oil slipped 81 cents to settle at $103.03
a barrel, after trading close to $2 a barrel lower at $101.86
earlier in the session. The contract slipped below the 100-day
moving average of $102.45.
Brent crude futures reversed earlier losses to
finish up 22 cents at $109.68 per barrel, after earlier trading
as low as $107.89.
Brent's premium to U.S. crude widened to $6.65, a move of
over $1 from Friday's close of $5.62 and its highest premium at
settlement since early September.
Oil and gas production in the U.S. Gulf of Mexico was
ramping up toward normal on Monday after Tropical Storm Karen
faltered off the Gulf Coast. Storm warnings had prompted energy
firms to shut in nearly two-thirds of oil output and half of
natural gas production as of Saturday.
The Gulf of Mexico accounts for about 1.3 million barrels
per day (bpd), nearly a fifth of U.S. oil output.
"Karen did not do any serious damage and I think Gulf
production is going to come back online, and that's weighing on
WTI," said Gene McGillian, an analyst at Tradition Energy in
"I think with that and the worries about the debt ceiling,
pushed Brent-WTI out a dollar today," McGillian said.
Economists are increasingly concerned that the budget
showdown could prevent legislation to raise the country's
borrowing limit by an Oct. 17 deadline, increasing the
possibility of a sovereign debt default.
A stalemate between U.S. political parties over how to fund
the government continued to weigh on the market as close to 1
million federal workers remained furloughed going into a second
(Additional reporting by Jeanine Prezioso in New York,
Christopher Johnson and Alexander Winning in London and Jacob
Gronholt-Pedersen in Singapore; Editing by William Hardy, Steve
Orlofsky, Carol Bishopric and Jim Marshall)