UPDATE 5-Brent drops below $107 on dollar strength
* Brent breaks below $107, testing support levels
* Dollar reaches two-week high, pressuring oil
* Libyan outages offer limited support
* N Sea crude supplies set to reach 2013 high in Nov
LONDON, Nov 1 (Reuters) - Brent crude oil dropped by more than $2 to below $107 a barrel on Friday as a strong dollar outweighed previous concerns over a drop in Libyan crude exports.
Brent crude for December delivery was down by $2.01 at $106.83 at 1417 GMT after rising as high as $109.41 a barrel in early morning trade.
The dollar rose to a two-week high against the euro, which fell after data showing slowing inflation led some in the market to forecast a near-term European Central Bank rate cut.
The greenback was up 0.63 percent against a wider basket of currencies. Dollar strength makes commodities priced in the greenback more expensive for overseas investors.
"The euro currency has fallen a lot, which translates into some dollar strength. We're really in a bearish market that is latching onto the bearish news," John Kilduff, a partner at Again Capital, said.
U.S. oil for December was down $1.23 at $95.15, putting it in line for a fourth straight week of declines, its longest losing streak since June 2012.
U.S. oil has been pressured by healthy inventory data from the U.S. Energy Information Administration.
But on Friday Brent's premium over U.S. crude oil , which had reached a seven-month high of $13.60 the previous session, narrowed to around $11.80 in early afternoon trade.
Friday's fall in Brent was driven by technical factors rather than supply and demand fundamentals, said oil broker Christopher Bellew at Jefferies Bache.
Months of disruptions in OPEC member Libya have slashed oil exports and rekindled supply worries, last month pushing Brent to a high of $112 a barrel.
In the previous session, Brent fell more than $1 as traders booked profits.
The return of North Sea oil fields from maintenance was also pressuring Brent, said Harry Tchilinguirian, an oil analyst at BNP Paribas in London.
Supplies of North Sea crude that underpin the Brent benchmark are set to reach a 2013 high in November, loading programmes show.
"Brent has been trading within a $2 range of $110 a barrel for three months," Tchilinguirian said.
"It is supported at these levels by multiple supply-side risks, but today it is testing that support."