UPDATE 6-Oil rises on storm fears, gains capped by gov't shutdown
* U.S. government shutdown drags into fourth day
* Tropical Storm Karen shutting production in Gulf of Mexico
(New throughout. Adds new quote. Updates prices. Changes byline/dateline to NEW YORK, previous LONDON.)
NEW YORK, Oct 4 (Reuters) - Oil futures were higher on Friday, on track for their first weekly gain after three weeks of declines as a tropical storm approached oil-producing regions in the Gulf of Mexico and oil producers shut in some production.
Concerns over a prolonged U.S. government shutdown limited gains, as it dampened the outlook for economic growth and oil demand in the United States, the world's largest economy.
Oil producers started shutting in offshore oil production in the Gulf of Mexico ahead of Tropical Storm Karen's arrival, providing support for oil.
The U.S. government shutdown entered its fourth day and nearly 1 million government workers remained home without pay while some Federal agencies and programs stopped functioning, cutting into the release of key economic data.
The United States faced the possibility of defaulting on its financial obligations on Oct. 17 as opposing political parties remained locked in debate over whether to raise the debt ceiling.
Brent crude rose 55 cents to $109.55 at 10:41 a.m. EDT (1441 GMT), after settling 19 cents lower in the previous session.
U.S. oil rose 81 cents to $104.12, after falling 79 cents on Thursday. Both benchmarks were set to end the week slightly higher, following declines in the previous three weeks.
"The hit to economic activity from the government shutdown is also offsetting some the angst that Karen would otherwise generate," said John Kilduff, a partner at Again Capital in New York.
The U.S. National Hurricane Center said Karen had weakened and was expected to be near the central Gulf Coast on Saturday.
The amount of oil production coming from U.S. onshore shale fields would offset offshore production losses from the storm, analysts said.
"New production coming from onshore in Texas and the Dakotas has alleviated some of the problems of shutting offshore production and despite recent drawdowns in U.S. inventories we still have an ample amount on hand," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut.
The U.S. Gulf basin provides nearly one-fifth of daily U.S. oil output.
The dispute over U.S. government spending has weighed on financial markets and sapped the dollar, which was off 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.
Stock markets were on track for steep losses for the week due to the government shutdown.
(Additional reporting by Robert Gibbons in New York, Alexander Winning in London and Jacob Gronholt-Pedersen in Singapore; Editing by Jason Neely, James Jukwey and Jeffrey Benkoe)