UPDATE 8-Oil falls on Iran president's comments
* Libya oil output up near 40 pct of pre-war level
* U.S. Federal Reserve will continue stimulus
NEW YORK, Sept 19 (Reuters) - Oil fell on Thursday after comments by Iran's president stirred perceptions he could be seeking better relations with the West, easing geopolitical concerns.
Further weakness came as Libyan crude oil production surged back following protests that had disrupted the OPEC nation's oil supplies since last month.
Iranian President Hassan Rouhani said that his country was not seeking war, that Iran would never seek to develop a nuclear weapon, and that he has authority to negotiate a deal with the United States.
Tehran and the West have been at odds over Iran's nuclear ambitions for most of the last decade, leading to sanctions that cut the OPEC members exports and creating concerns that supplies from other producers nearby could be impacted.
The prospect of easing tensions and higher supplies depressed oil prices, even as other commodities and equities rose after the United States Federal Reserve surprised markets by deciding it would keep its monetary stimulus program intact.
"There's a growing realization with the Libyan barrels back on the market and the potential for Iranian oil to come back that we're going to see the international benchmark (Brent) come under pressure," said John Kilduff, a partner at Again Capital LLC in New York, adding that Saudi Arabia's production was at near-record levels as well.
Easing fears of a U.S.-led military strike on Syria also helped to dampen prices, with Western powers meeting for a second day of talks on their draft resolution on eradicating Syria's chemical arsenal.
November Brent crude traded down $1.72 to $108.88 a barrel at 1:49 p.m. (1749 GMT). Losses deepened in a heavy bout of trading around 11:30 a.m. EDT which sent prices down $1 in the span of 30 minutes.
October U.S. crude, which expires on Friday, lost $11.40 to trade at $106.93.
The premium of November Brent to November U.S. crude <CL-LCO1=R> narrowed by 50 cents to $2.80 a barrel in afternoon activity, well off levels of over $8 seen when the Libyan disruptions pushed up prices for the international benchmark.
RBOB gasoline futures led the oil complex lower, falling nearly 5 cents to under $2.70 a gallon, extending gains for the month to over 10 percent so far this month as the U.S. driving gasoline season ended and tight summer gasoline specifications came to an end.
Libya's crude oil production has recovered to nearly 40 percent of its pre-war capacity, officials said on Wednesday with exports set to rise as major western fields ramped up output to 620,000 barrels per day (bpd) after protesters agreed to reopen them.
Brent and U.S. oil both posted their biggest rise in three weeks in the previous session as the Federal Reserve's decision to delay the wind-down of its massive monetary stimulus weakened the dollar and stoked demand for risky assets.
"Crude oil has to trade between Fed relief and Iranian belief," said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland.
(Additional reporting by Simon Falush in London; Editing by Matthew Robinson, Leslie Gevirtz and Jim Marshall)