UPDATE 9-Oil rises on geopolitical risk, U.S. debt uncertainty
* Obama would accept short-term increase in debt ceiling
* North Sea crude supply set to reach a 2013 high in Nov
* U.S. weekly crude stockpiles seen up 1.5 mln barrels
* Oil production in Gulf of Mexico nearly back at normal (Updates with API data, paragraphs 13, 14)
By Anna Louie Sussman
NEW YORK, Oct 8 (Reuters) - Crude oil prices on both sides of the Atlantic gained on Tuesday as geopolitical risk crept back into the markets, even as the dollar index turned positive after a mid-morning phone call between U.S. President Barack Obama and U.S. House Speaker John Boehner over the budget crisis.
Obama urged Boehner to hold a simple vote to end the government shutdown and raise the nation's debt limit, saying international creditors look to Congress for reassurance about U.S. creditworthiness.
Analyst Jim Ritterbusch described the budget crisis as "somewhat of a two-edged sword" for oil prices, in a research note. He said the budget crisis had weakened the U.S. currency, making oil more attractive for holders of other currencies, while also raising the possibility of a steep sell-off in oil.
The dollar edged up slightly but remained near its recent eight-month low against major currencies as U.S. lawmakers struggled to find a solution to the country's budget and debt problems that could potentially lead to a default if left unresolved.
"Since the U.S. dollar or currency markets didn't offer much support today, we feel that some of the rally is reflective of increased civil unrest in Egypt and some ideas that another Cushing draw could be forthcoming within upcoming API/EIA releases," Ritterbusch wrote, referring to reports on the nation's energy inventories due later Tuesday and on Wednesday.
Political clashes in Egypt and the capture by U.S. forces of a senior al Qaeda figure in Libya over the weekend raised the spectre of supply disruptions in a region that pumps a third of the world's oil.
"It's going to make a lot of sense for [al Qaeda] to strike at oil infrastructure" in Libya, said John Kilduff, partner at Again Capital LLC in New York.
Brent rose 48 cents to settle at $110.16 a barrel, after earlier posting gains of over $1. U.S. oil rose 46 cents to $103.49, after earlier gaining over $1.
U.S. crude has traded largely between $102 and $109 since early July.
Upward pressure on Brent was expected to ease as the supply of North Sea crude that underpins the benchmark is set to reach a 2013 high in November, according to loading programs.
Several analysts said that despite the day's price gains, risk in crude was to the downside.
"We suspect that the latest show of strength on the part of oil is only temporary, and still see downside risks," in light of uncertainty around the U.S. budget and debt ceiling crises and mounting supplies, said a Commerzbank research note.
U.S. crude stocks rose by 2.8 million barrels to 366.5 million barrels in the week through Oct. 4, as refineries cut output, while gasoline and distillate inventories declined, data from industry group the American Petroleum Institute (API) showed on Tuesday.
The build reported by the API exceeded forecasts in a Reuters survey which predicted a 1.5 million barrel build in crude oil stocks.
Markets were concerned that the U.S. government shutdown would cut demand and hurt consumer confidence. JPMorgan economists estimate every week of shutdown translates to a 0.12 percent reduction in the U.S. quarterly annualised GDP growth rate.
Obama told the Republican Boehner that he would be willing to negotiate with Republicans once the U.S. government is re-opened and the threat of a default is lifted, the White House said.
Oil production in the U.S. Gulf of Mexico was nearly back to normal after the threat of Tropical Storm Karen prompted energy firms to shut nearly two-thirds of oil output as of Saturday.
The U.S. Energy Information Administration is expected to release its data on Wednesday at 1430 GMT, despite the government shutdown. (Additional reporting by Peg Mackey in London, Jacob Gronholt-Pedersen in Singapore; Editing by Marguerita Choy and Bob Burgdorfer)
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