Brent slips below $109 as US shutdown drags on, stockpiles jump
* US crude inventories rise sharply as refinery utilization slips
* Obama, congressional leaders still deadlocked on shutdown
* Oil makes largest gain in two weeks overnight on news of Keystone start
* Coming Up: U.S. ISM Non-manufacturing index; 1400 GMT
SINGAPORE, Oct 3 (Reuters) - Brent futures slipped below $109 a barrel on Thursday, after posting their biggest gain in two weeks in the previous session, on worries a prolonged U.S. government shutdown would hurt demand in the world's biggest oil consumer.
President Barack Obama met with Republican and Democratic leaders in Congress to try to break a budget deadlock that has shut wide swaths of the federal government, but after more than an hour of talks there was no breakthrough. Oil was also under pressure from a surprise surge in U.S. crude stockpiles.
Brent crude slipped 28 cents to $108.91 by 0247 GMT, after settling $1.25 higher. U.S. oil fell 41 cents to $103.69, after ending $2.06 higher.
"The upside potential for oil is quite limited, and the U.S. government shutdown is a negative factor and may hurt demand," said Tetsu Emori, a commodity sales manager at Astmax Investments in Tokyo. "The overall demand outlook is weak."
Crude surged overnight following news that TransCanada Corp's Keystone XL Gulf Coast pipeline would start up by the end of the year. The pipeline will ship crude from the Cushing, Oklahoma, delivery point of the U.S. oil futures to Nederland, Texas.
Emori expects oil futures to remain weak over the next few weeks, with Brent trading between $100 and $105 a barrel. Oil is however unlikely to slide much further below that range as that price level is preferred by most exporters, especially those in the Middle East, to support their budgets.
Oil at that level would also support production of shale oil in the United States that is helping the country reduce dependence on imports, Emori said.
Investors, for now, are focussing on the U.S. government shutdown and the immediate impact it is having on the dollar, which languished at eight-month lows early in Asia on Thursday. A weak dollar boosts commodities priced in the greenback.
U.S. crude inventories rose sharply last week as refinery utilization fell, while the drawdown at Cushing, Oklahoma slowed.
Crude stockpiles increased by nearly 5.5 million barrels, data from the U.S. Energy Information Administration showed, against analysts' forecasts for a 2.3 million barrel rise. The U.S. Gulf Coast saw the biggest increase, up 3.8 million barrels, during the week to Sept. 27.
Brent faces a resistance at $109.30 per barrel, a break above which will lead to a further gain to $110.83, while U.S. oil may retest a resistance at $104.08, according to Reuters technical analyst Wang Tao.
(Editing by Himani Sarkar)