Brent crude slipped below $108 a barrel on Monday and was on track for its first monthly drop in four months, as tensions over Iran eased and as a potential US government shutdown clouded the outlook for demand.

Republicans and Democrats are locked in an impasse over funding which could see the US government shut for the first time in 17 years.

Brent crude had fallen 80 cents to $107.83 a barrel by 0254 GMT, set for a 5.5-per cent drop in September. US crude was down $1.20 at $101.67 a barrel, after earlier slipping to its lowest in nearly three months at $101.45.

A potential strike at the Grangemouth refinery in Scotland could disrupt the North Sea crude supplies that underpin Brent, curbing losses in the European benchmark.

"The key driver across commodities is the US budget," said Timothy Radford, an analyst at investment firm Rivkin in Sydney.

"A lot of risk assets have downward pressure placed on them unless we see some resolution (in the United States)."

Oil fell alongside other commodities and equities as investors shifted towards safe havens such as the Japanese yen and Swiss Francs ahead of the funding deadline at midnight on Monday. The euro also weakened against the US dollar as the Italian government teetered on the edge of collapse.

Elsewhere, major commodity-consumer China is starting to turn the corner though a firm rebound remains elusive. Domestic orders proved to be weaker than preliminary estimates suggested, a private survey showed.

A rise in Libya's oil output and easing tensions over Syria and Iran have also weighed on crude prices.

US President Barack Obama and new Iranian President Hassan Rouhani spoke by telephone on Friday, the highest-level contact between the two countries in three decades and a sign that they are serious about reaching a pact on Tehran's nuclear programme.

"The fact that both presidents have spoken is quite a big breakthrough," Radford said. "That's quite positive in the reduction of tensions between Iran and the US, although it's negative for oil prices."

The UN Security Council agreed on a resolution to eradicate chemical weapons in Syria on Friday, averting punitive US military action against Syrian President Bashar Al-Assad's government.

In Libya, crude exports have risen above 580,000 barrels per day after western fields reopened this month, but oil export facilities in the east remain closed by protesters, a senior oil official said on Friday. - Reuters