UPDATE 2-Brent falls toward $115 on possibility of Syria strike delay
* Obama makes case for punishing Syria, but possible delays loom
* Libya oil output drops to 250,000 bpd from 1.6 mln bpd pre-war
* Iran expands nuclear capacity, delays sensitive reactor - IAEA
* Coming up: U.S. weekly jobless claims; 1230 GMT
(Adds Iran nuclear report, analyst's quotes; updates prices)
SINGAPORE, Aug 29 (Reuters) - Brent crude dropped toward $115 a barrel on Thursday as the possibility of a delay in a U.S.-led military strike on Syria helped calm worries on Middle East oil supply.
The West was gearing up for a military strike in response to last week's chemical weapons attack, although U.S. President Barack Obama faced new obstacles with British allies and U.S. lawmakers that could delay any imminent action.
Brent crude for October delivery hit a low of $115.15 a barrel and was at $115.40, down $1.21, by 0656 GMT. It had jumped more than 5 percent in the previous two sessions, its strongest 2-day gain since January 2012.
October U.S. crude fell $1.01 to $109.09 a barrel following a near 4 percent gain over the past two days.
"If geopolitical tensions in Syria get caught up in diplomacy, then like Iran, the premium will erode and prices will retreat," said Jonathan Barratt, chief executive of Sydney-based commodity research firm Barratt's Bulletin.
Obama said on Wednesday that a "tailored, limited" strike, not a protracted engagement like the unpopular Iraq war, could be enough to send a strong message that the use of chemical weapons cannot be tolerated.
Oil has jumped this week to multi-month highs on fears that the potential strike on Syria could spread unrest to major oil producers in the Middle East and disrupt supply.
"There are so many other parties involved when it comes to Syria," said Tony Nunan, a risk manager at Mitsubishi Corp. "Israel, Iran are close by and other countries could get dragged into it."
Oil is likely to stay above $110 with support from the Middle East uncertainty and as the Libyan oil supply situation has worsened, he said.
Libya's crude output has been cut to 250,000 barrels per day (bpd) from pre-war levels of 1.6 million bpd as workers' strikes crippled exports, Prime Minister Ali Zeidan said on Wednesday.
U.S. CRUDE STOCKPILES UP
Iran could also return to focus as a report from the U.N. atomic agency showed the country has expanded its nuclear capacity, but delayed the commissioning of a reactor. Iran and the world's major powers will resume talks on Sept. 27.
Brent's premium to U.S. crude <CL-LCO1=R> has risen to more than $6 a barrel, the widest since June, on expectations of rising supply at the U.S. contract's delivery point in Cushing, Oklahoma.
U.S. crude stockpiles rose almost 3 million barrels to 362 million barrels last week, data from the U.S. Energy Information Administration showed on Wednesday, far exceeding a forecast of a 0.2 million barrel build in a Reuters poll.
Crude stocks at Cushing, Oklahoma, have dropped 26 percent since the end of June to 36.59 million barrels, falling 837,000 barrels last week as crude supply is diverted elsewhere after pipeline bottlenecks eased.
Analysts expect U.S. crude futures to weaken against Brent, keeping the price spread at more than $5 a barrel, as domestic production continues to rise from shale resources.
"While improved infrastructure will allow greater volumes to reach the Gulf Coast from Cushing, the inability to export U.S. crude volumes will eventually ensure that the previous overhang of crude at Cushing will merely be transferred to the Gulf Coast," BNP Paribas analysts said in a note.
(Editing by Richard Pullin and Muralikumar Anantharaman)