SINGAPORE/LONDON: Brent crude fell more than $1 to trade below $102.5 a barrel on Monday, as the threat of wider conflict in Ukraine diminished, oil output increased in Libya and worries eased over supply from key producer Iraq.
The drop followed a spike in benchmark prices on both sides of the Atlantic on Friday when fighting in east Ukraine intensified.
In what may be a breakthrough in Ukraine's campaign against pro-Moscow separatists, government forces raised their national flag over a police station in the city of Luhansk that was for months under rebel control.
Also reassuring investors, Russia's Foreign Ministry said on Monday a "certain progress" was achieved during talks among Russia, Germany, France and Ukraine in Berlin on Sunday.
"There was a scare on Friday, but investors realized over the weekend that geopolitical threats are becoming less serious," said Avtar Sandu, a senior commodities manager at Phillip Futures in Singapore.
Brent crude for October delivery had fallen $1.32 to $102.21 a barrel by 0837 GMT. The contract closed $1.52 a barrel higher on Friday.
U.S. crude for September delivery was 88 cents lower at $96.47 a barrel, after ending the previous session up $1.77 a barrel.
There were also improvements in oil supplies, with Libya's oil production rising to 535,000 barrels a day (bpd) on Sunday from 400,000 bpd earlier in the week due to higher output at the southwestern El Sharara and El Feel fields, a spokesman for National Oil Corp (NOC) said.
"We have a situation where inventories and supplies are rising. So with geopolitical risks seemingly easing, people don't want to hold long positions," Sandu said.
SMALL VOLUMES
Despite Libya's improving output and the reopening of ports in the east of the country, oil production in the North African state is still way off the 1.4 million barrels per day it produced last year before a series of strikes, protests and blockades slashed output to as low as 200,000 bpd.
"Libya is something of an enigma for oil markets. The production volumes are still quite small and let's see how many ships actually load at the reopened ports," said Sandu.
In Iraq, Kurdish fighters pushed to retake the country's largest dam on Sunday and the United States conducted a second day of air strikes in the area, in a drive to reverse gains by Islamic State insurgents.
The fighting in Iraq has yet to affect oil supplies from southern oil ports. In the north, Iraqi Kurdistan has delivered its third major cargo of crude oil, showing the autonomous region is finding more buyers despite legal pressure from Baghdad.
Adding to the easing of tensions and improved output in Libya, Brent prices have been weighed down by low demand from refineries in Europe and Asia in recent months.
Refinery crude runs in Europe remain well below last year's level, even after rising in July compared with June.
"Despite the improvement in European crude runs, we continue to see deep contango and bearish price action around expiry, as the market struggles to find buyers willing to take physical delivery," analysts at Morgan Staley said in a note.
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