UPDATE 10-Oil ends touch lower; upbeat US data offsets supply recovery
* U.S. services sector growth accelerated in July
* Libyan oil output improves to 700,000 bpd -oil minister
* Euro zone retail sales decline in June
* Coming up: APP U.S. inventory data Tuesday at 2030 GMT
(Adds settlement prices, paragraphs 8-10; Reuters U.S. oil inventory forecast final four paragraphs) NEW YORK, Aug 5 (Reuters) - Oil ended a hair lower on Monday after touching a four-month high last week, as data showing growth in the U.S. services sector helped recoup earlier losses. Brent and U.S. crude each lost more than $1 earlier in the session on news of attempts by Iran's new president to thaw relations with the West, as rebounding production in Libya and the North Sea increased the levels of readily avaiable crude. But both benchmarks rebounded after the Institute for Supply Management (ISM) reported the pace of growth in the U.S. services sector surged to a five-month high in July.
"The market turned after the services number came out," said Gene McGillian, an energy analyst at Tradition Energy in Stamford, Connecticut. "Our little selloff was a continuation of profit-taking generated from last week's disappointing employment report and the Libyan export terminal coming back online, but it didn't really attract a lot of sellers." Brent lost 25 cents to settle at $108.70 a barrel after earlier dropping as much as $1.40 to $107.55. U.S. crude oil futures lost 38 cents to settle at $106.56 a barrel after earlier falling to $105.70. The North Sea Benchmark's premium to its U.S. counterpart widened to $2.14 per barrel after having reached intraday highs of $2.50 and lows of $1.55 by the time of settlement. Gasoline prices took heavier losses, with the RBOB contract dropping 4.5 cents, or almost 1.5 percent, to settle at $2.95 per gallon.
SUPPLY GROWTH Oil prices remained under pressure from news of increased supply from Libya and the North Sea, while hints of a thawing in Iran's relations with the West called into question crude's geopolitical risk premium. Investors were cautious after newly elected Iranian President Hassan Rouhani signalled his willingness to improve relations with the West and end a dispute over Tehran's nuclear program, which has resulted in sanctions cutting Iranian oil exports by half, helping support global crude prices.
Libyan Oil Minister Abdelbari al-Arusi told a news conference on Monday that the country's oil output had improved to around 700,000 barrels per day (bpd) and the government was working to end protests at oil facilities. Arusi said last week that strikes and protests at oil terminals had cut output to 330,000 bpd from 1.4 million bpd before output was disrupted. "The return of Libyan production has applied pressure to the oil complex, including products, because the loss of Libyan oil would probably have helped exports from the United States," said Phil Flynn, an analyst with Price Futures Group in Chicago. Output is also improving in the North Sea, industry sources say, with news that the Buzzard oilfield, Britain's largest, was expected to begin restarting later on Monday, on schedule, after a five-day maintenance shutdown. Loss of production from key oil exporters has been an important support for prices over the last month, with a series of unscheduled outages disrupting output. Shipments from Iraq have also been hit by damage to pipelines, and maintenance work is expected to cut Iraqi output The European retail sales figures for June cast a shadow over data from Britain and Germany showing modest growth in manufacturing and construction, highlighting the fragile nature of Europe's economic recovery and energy demand.
REUTERS INVENTORY FORECAST Analysts and investors polled by Reuters estimated that U.S. crude oil and refined products inventories dropped in the week to Aug. 2. U.S. crude oil inventories were expected to drop by 700,000 barrels to levels of 345.9 million barrels, a decrease of 3.7 million from levels seen this time last year. Gasoline stockpiles were also expected to fall, dropping by 1.2 million barrels to reach 222.3 million barrels, 1.8 million barrels lower than last' years level. Distillates - a category that includes diesel, heating oil, and jet fuel - were the only products expected to see a rise in inventory, with the polled analysts predicting an increase of 200,000 barrels to levels of 126.2 million barrels. The American Petroleum Institute, an industry group, will release its stockpile report on Tuesday at 4:30 p.m. EDT (2030 GMT). The U.S. Energy Information Administration will issue its data on Wednesday at 10:30 a.m. EDT (1430 GMT).
(Additional reporting by Robert Gibbons in New York, Christopher Johnson in London, Manash Goswami in Singapore; Editing by Andrew Hay, Leslie Gevirtz and John Wallace)