UPDATE 5-Brent slides on signals of Libyan oil recovery

Peg Mackey
Monday, 30 Dec 2013 | 9:01 AM ET

* Libya official expects "good news" on Hariga port reopening

* South Sudan oil output down due to fighting

* U.S. crude prices supported by lower domestic stockpiles

(Updates throughout)

LONDON, Dec 30 (Reuters) - Brent crude fell below $112 a barrel on Monday on early signals that oil output from Libya may be starting to recover.

Libya's Sarir and Messla oilfields are up and running, although the Hariga port they connect with needs to reopen before exports can resume.

The North African OPEC producer has been pumping a mere 250,000 barrels per day (bpd) versus 1.4 million bpd in July before civil unrest disrupted flows.

Brent crude dropped 88 cents to $111.30 a barrel by 1341 GMT. U.S. crude was down 50 cents at $99.82.

"If Libya does recover and going forward we get more oil back on from Iraq and Iran, then the market should come off," said Rob Montefusco, oil trader at Sucden Financial.

"But the economy is starting to come back, which should lead to more demand - so things could be finely balanced."

Losses were kept in check by rising violence in South Sudan that threatens to cut the country's crude output further.

Despite an offer of a truce to end the conflict in South Sudan last week, the country's army fought ethnic militias over the weekend in a battle that has left at least 1,000 dead and split the oil-producing country barely two years after it won independence from Sudan.

Crude output in South Sudan had fallen nearly a fifth to 200,000 bpd after oilfields in Unity state shut early last week due to fighting.

Adding further support, U.S. crude oil stocks fell by 4.7 million barrels in the week to Dec. 20 as the Gulf Coast continued to shed inventories, even though U.S. oil production reached a 25-year high.

The price of U.S. crude has increased by 8.2 percent in December due to falling stockpiles, helping narrow the gap to Brent to as little as $8.13 a barrel.

While the spread between the two benchmarks <CL-LCO1=R> widened on Monday to around $12, it is expected to narrow as the Keystone XL pipeline is launched in the United States.

The pipeline will allow rising inventories at the Cushing, Oklahoma oil hub to move to the U.S. Gulf Coast, where a large share of the country's refining capacity is concentrated.

U.S. crude has lost value relative to Brent due to infrastructure constraints amid rising shale oil production, causing a supply glut at Cushing, where the main NYMEX oil contract is priced.

(Additional reporting by Jacob Gronholt-Pedersen in Singapore; Editing by William Hardy and Dale Hudson)