Brent crude hovers near $107 on Libya, Iraq concerns

By Keith Wallis

SINGAPORE (Reuters) – Brent crude inched lower on Tuesday, but still held near $107 a barrel as worries over conflict in the Middle East and North Africa supported prices.

Several soldiers were killed and aircrafts were damaged in Libya on Monday, as rival militias in the OPEC nation fought for control of Tripoli's airport in the worst violence for six months.

"The market is still concerned about Iraq and Libya. I don't think we are out of the woods by any stretch of the imagination," said Tony Nunan, oil risk manager at Tokyo'sMitsubishi Corp.

Brent could rise again on any sign of further threats to oil supplies in Iraq, Nunan said.

Brent futures had dropped 23 cents to $106.75 a barrel by 0558 GMT, after climbing 32 cents to settle at $106.98 in the previous session. Prices remain near their lowest in three months.

U.S. crude fell 3 cents to $100.88 a barrel, consolidating an 8-cent gain from the day before.

Brent has steadily fallen since prices soared to a nine-month high of $115.71 in mid-June. That climb came after Islamic insurgents took control of swathes of northern and western Iraq, although output from the main southern oilfields has remained unaffected by the violence.

"The market is unwinding the risk from Ukraine and Iraq even as these regions remain in play" in terms of risk, said Ric Spooner, chief market analyst at Sydney's CMC Markets.

"The market is getting back to basic supply and demand fundamentals," Spooner added.

Investors are watching for U.S. oil inventory reports due on Tuesday and Wednesday. Analysts polled by Reuters expect to see a 2-million-barrel drop in crude stocks for the week ended July 11 based on increased refining activity.

The market is also waiting for China's June growth figures, due out Wednesday, to give a sense of whether the world's second largest economy and the world's top net oil importer needs further stimulus support.

The GDP figures for June are not likely to vary much from the expected range of 7.2-7.6 percent, Spooner said.

"If it's a little bit higher or lower either way it may get a knee-jerk reaction [from the markets]," he said.

Investors were also keeping an eye on geopolitical issues in Iran and Ukraine.

Tehran and six world powers are racing to conclude an agreement on Iran's nuclear programme ahead of a July 20 deadline.

Ukrainian President Petro Poroshenko accused Russian military staff officers on Monday of fighting alongside separatists in the east of the country and said a newly-developed Russian missile system was being used against government forces.