UPDATE 3-Oil steady near $109 as storm fears limit losses
* U.S. government shutdown drags into fourth day
* Tropical Storm Karen shutting production in Gulf of Mexico
* Easing U.S.-Iranian tensions weigh on oil
(Updates prices, adds quote, changes dateline from SINGAPORE)
LONDON, Oct 4 (Reuters) - Brent crude oil edged above $109 a barrel on Friday as concerns over a prolonged U.S. government shutdown triggered by a row over state spending were offset by a tropical storm curbing supply in the Gulf of Mexico.
The U.S. shutdown, now in its fourth day, is expected to hurt demand in the world's largest oil consumer, as nearly a million government workers are home without pay.
But with energy companies shutting in production as Tropical Storm Karen headed towards the gulf basin, supply disruptions supported prices.
Brent crude rose 25 cents to $109.25 by 0855 GMT, after settling 19 cents lower in the previous session.
U.S. oil rose 25 cents to $103.56, after ending down 79 cents on Thursday. Both benchmarks were set to end the week slightly higher, following declines in the previous three weeks.
"The Brent price is pretty stable," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.
"It's being pulled down by the shutdown, declining geopolitical risks and positive inventory data released earlier in the week, but the storm in the Gulf of Mexico is preventing a price drop."
Energy companies in the Gulf of Mexico started shutting in production and evacuating some workers on Thursday. The U.S. Gulf basin provides nearly a fifth of daily U.S. oil output.
The National Hurricane Center said the storm was expected to be at or near hurricane strength on Friday or Saturday, and that it could reach the U.S. Gulf Coast between Louisiana and the Florida Panhandle over the weekend.
The dispute over the U.S. government budget has begun to weigh on financial markets. President Barack Obama has called off plans to visit Asia in a bid to end the government shutdown.
Another crisis looms in two weeks, when U.S. lawmakers must decide whether to increase the U.S. government's $16.7 trillion borrowing limit.
A further easing of tensions between Iran and the West over the Tehran's nuclear programme also dragged on prices.
The United States on Thursday held out the possibility of giving Iran some short-term sanctions relief in return for concrete steps to slow uranium enrichment and shed light on its nuclear programme.
The dollar languished near an eight-month low on Friday against a basket of major currencies.
A weaker dollar is supportive for oil, as importing nations find it cheaper to buy dollar-priced oil in their own currencies.
(Additional reporting by Jacob Gronholt-Pedersen in Singapore; editing by Keiron Henderson)