UPDATE 5-Oil heads towards $110 as storm approaches U.S. Gulf
* 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, recasts lead)
LONDON, Oct 4 (Reuters) - Brent crude oil edged towards $110 a barrel on Friday as a tropical storm approached the oil-producing regions around the U.S. Gulf, but concerns over a prolonged U.S. government shutdown and reduced tension over Iran kept prices in check.
Energy companies including Exxon and BHP Billiton started shutting in offshore oil production in the Gulf of Mexico on Thursday ahead of Tropical Storm Karen's arrival, providing support for oil.
The U.S. shutdown, which was triggered by a row over state spending and is now in its fourth day, is expected to hurt demand in the world's largest oil consumer, as nearly 1 million government workers have been forced to take unpaid leave.
Brent crude rose 67 cents to $109.67 by 1350 GMT, after settling 19 cents lower in the previous session.
U.S. oil rose 70 cents to $104.01, after falling 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, ... but the storm in the Gulf of Mexico is preventing a price drop."
Some energy companies in the U.S. Gulf have halted production and evacuated rig workers, disrupting crude supplies.
"The storm in the U.S. Gulf will certainly lead to a reduction in loadings of crude oil, which may create some price tightness," said Gareth Lewis-Davies, senior energy strategist at BNP Paribas.
The National Hurricane Centre 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 U.S. Gulf basin provides nearly a fifth of daily U.S. oil output.
The dispute over U.S. government spending has weighed on financial markets and sapped the dollar, which languished near eight-month lows 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.
U.S. President Barack Obama has called off plans to visit Asia in an effort to break the deadlock, but another crisis looms in two weeks, when U.S. lawmakers must decide whether to increase the government's $16.7 trillion borrowing limit.
"The implications of the borrowing discussions are that they call into question the ability of the U.S. government to honour its debt, which has serious implications for the global economy," Lewis-Davies said.
Signs of reduced tension between Iran and the West over Tehran's nuclear programme also weighed on oil prices.
The United States on Thursday held out the possibility of giving Iran some short-term sanctions relief in return for concrete steps to shed light on its nuclear programme.
The West's standoff with Iran over the OPEC nation's nuclear programme has buoyed oil prices for nearly a decade. Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day.
(Additional reporting by Jacob Gronholt-Pedersen in Singapore; editing by Jason Neely and James Jukwey)