UPDATE 7-U.S. oil recoups losses after pipeline resumes
* Gulf of Mexico output returning to normal after storm
* Concerns over U.S. debt default cloud demand outlook
(New throughout. Adds details on Seaway pipeline, fresh quote. Updates prices. Changes byline/dateline to NEW YORK, previously LONDON)
NEW YORK, Oct 7 (Reuters) - U.S. oil futures pared losses on Monday in late morning trade after a report that a key pipeline delivering crude oil from Cushing, Oklahoma, had resumed shipping following an earlier outage.
Operations of the Seaway oil pipeline, through which crude oil flows from Cushing to Gulf Coast refineries, resumed after a brief shutdown, industry intelligence firm Genscape reported. Cushing is the delivery point for the U.S. oil futures contract.
U.S. crude oil was last trading 53 cents lower at $103.31 per barrel at 11:39 a.m. EDT (1539 GMT), bouncing higher after trading close to $2 a barrel lower at $101.86. The contract slipped below the 100-day moving average of $102.45.
Brent oil was last trading 8 cents lower at $109.38 after trading as low as $107.89.
The closely watched spread between Brent oil and U.S. oil futures, known as the "Brent/WTI" spread <CL-LCO1=R>, was last trading at $6.06 a barrel after widening to $6.32.
The market had recouped losses on the Seaway pipeline news, said Addison Armstrong, senior director of market research at Tradition Energy in Stamford, Connecticut.
Prices had been set for a rebound after selling off too sharply in the morning session, he said.
A stalemate between U.S. political parties over how to fund the government continued to weigh on the market as close to 1 million federal workers remained furloughed going into a second week.
"This morning's selling was a bit overdone and based on the fact that there was no progress over the weekend to remove the uncertainty of what's going to happen to the U.S. government," Armstrong said.
Economists are increasingly concerned that the budget showdown could prevent legislation to raise the country's borrowing limit by an Oct. 17 deadline, increasing the possibility of a sovereign debt default.
Prices were also supported as oil production in the Gulf of Mexico resumed over the weekend after a tropical storm led producers to shut in nearly two-thirds of oil output last week.
The Gulf of Mexico accounts for about 1.3 million barrels per day (bpd), nearly a fifth of U.S. oil output.
"Abundant supplies mean the market has little to worry about now that the storm has passed," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.
(Additional reporting by Christopher Johnson and Alexander Winning in London and Jacob Gronholt-Pedersen in Singapore; Editing by William Hardy and Steve Orlofsky)