Global oil prices dropped below $110 per barrel on Wednesday, after U.S. lawmakers made little progress to end a budget impasse that threatens to hurt investor confidence and curb demand in the world's biggest oil consumer.
Declines were limited, however, balanced out by a weaker dollar and by concerns that further unrest in Egypt and Libya could disrupt Middle East supply.
Brent oil traded 28 cents lower at $109.88 per barrel at 0830 GMT, after settling higher on Tuesday for a third straight session. U.S. oil was 25 cents lower at $103.24 per barrel.
U.S. President Barack Obama said on Tuesday he would negotiate budget issues with Republicans only if they agreed to reopen the government and raise the debt limit.
"Despite the global pressure on equities, crude has not priced in as much of the political circus in Washington DC," Olivier Jakob, oil analyst at Petromatrix, said.
"It has shown some resilience because what is happening suggests that the tapering of the Federal Reserve stimulus may not happen now until next year."
The U.S. dollar hovered near an eight-month low against major currencies, providing some support for oil. A weak U.S. currency makes dollar-denominated oil cheaper to import.
Political clashes in Egypt and the capture by U.S. forces of a senior al Qaeda figure in Libya over the weekend also raised the risk of disruptions to supply from key oil producing areas in North Africa.
The International Monetary Fund (IMF) warned on Tuesday that possible supply disruptions may push oil prices as high as $150 per barrel next year in two out of three scenarios described in its World Economic Outlook.
It also cut its world growth forecasts for the sixth straight time in less than two years, saying a stronger performance in the most advanced economies would not make up for sluggish expansion in the developing world.
"If Asia continues to weaken I think it will start to affect Brent," Jakob said.
U.S. crude stocks rose more than expected last week as refineries cut output, the American Petroleum Institute said. Crude inventories rose 2.8 million barrels, versus analysts' expectations for an increase of 1.5 million barrels.
The closely watched U.S. commercial crude inventory data from the Energy Information Administration (EIA) is due later in the day, despite the government shutdown.
In its monthly report, the EIA said global oil markets would be better supplied in 2014 than previously forecast. It saw oil demand growth next year at 1.17 million barrels per day, a fall of 20,000 bpd from the September forecast.