Oil slips below US$108 as US govt begins shutdown

SINGAPORE (Reuters) - Brent crude fell below US$108 a barrel on Tuesday to trade near a 7-week low on worries a shutdown of the US government may crimp oil demand, while investors also eyed easing tensions in US-Iran nuclear talks.

The US government began a partial shutdown on Tuesday for the first time in 17 years, potentially putting up to 1 million workers on unpaid leave, closing national parks and stalling medical research projects.

"The shutdown of the government would result in the decrease in demand for oil in the world's top oil consumer, pressuring prices, as hundreds of thousands of government employees would be forced to stay home without any pay," Teoh Say Hwa, head of investment at Phillips Futures wrote in a note.

Brent crude for November fell 62 US cents to US$107.75 a barrel by 0433 GMT. US crude was at US$102.01, down 32 US cents.

Oil prices have come under downward pressure in the past month as supply has improved, with Libya ramping up output while tensions over Syria and Iran eased.

"A lot of bull factors have been removed from the market,"said Ken Hasegawa, a commodity sales manager at Newedge Japan.

"I can't find any bullish factors for oil." Technical charts showed that US crude futures may fall to US$100 after breaking a support level of US$102, Hasegawa said, adding that the next support level for Brent is at US$105.85.

In China, weaker-than-expected growth in the manufacturing sector in September added to concerns that a nascent recovery in the world's second largest economy may be foundering.

Signs of a thawing in relations between the US and Iran also weighed on oil prices.

Obama and new Iranian President Hassan Rouhani spoke by telephone last week in the highest-level contact between the countries in more than three decades, fuelling hopes for a resolution of Iran's decade-old nuclear standoff with the West.

Investors are also looking ahead to US oil inventories data on Wednesday. The US Energy Information Administration (EIA) said it has enough resources to operate approximately through Oct. 11 in the event of a government shutdown.

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