OilBarrelCorbisBarbaraDavidson460Brent crude oil rose above 110 dollars a barrel on Tuesday.

Gains were, however, likely to be short-lived given an improved oil supply outlook and cloudy prospects for demand due to the U.S. budget crisis.

Analysts said oil could be gaining from the withdrawal of most financial investors who wanted to sell.

Upward pressure on Brent is expected to ease as the supply of North Sea crude that underpins the benchmark is set to reach a 2013 high in November, according to loading programmes.

“Oil is still doing surprisingly well given the ongoing budget crisis in the U.S., the approach of the debt ceiling and mounting supplies,” said a Commerzbank research note.

“Nevertheless, we suspect that the latest show of strength on the part of oil is only temporary and still see downside risks in view of the factors mentioned above.”

Brent was up 62 cents at 110.30 dollars a barrel at 1004 GMT. U.S. oil was up 67 cents at 103.70 dollars.

Concern continued to linger that the U.S. government shutdown would cut demand for oil and hurt consumer confidence.

JPMorgan economists estimate that every week of shutdown translates to a 0.12 percent reduction in the U.S. quarterly annualised GDP growth rate.

President Barack Obama said on Monday he would accept a short-term increase in the nation’s borrowing authority to avoid a default.

The comment came one week into the government shutdown and only 10 days from a critical deadline to raise the country’s debt ceiling.

Oil production in the U.S. Gulf of Mexico was ramping up towards normal on Monday after Tropical Storm Karen faltered off the Gulf Coast.

Storm warnings had prompted energy firms to shut nearly two-thirds of oil output as of Saturday.

U.S. commercial crude oil inventories are meanwhile forecast to have risen 1.4 million barrels in the week ended Oct. 4, a Reuters’ survey of six analysts showed.

The U.S. Energy Information Administration is expected to release its data on Wednesday at 1430 GMT, despite the government shutdown.


Information from Reuters/NAN was used in this report.