UPDATE 7-Oil drops $2 on Libya oilfield restart, likely stock build
* Libya hopes to restart El Sharara oilfield in days
* China factory activity slows in Dec - govt, HSBC
* Traders expect a build at Cushing - market sources
* Coming up: EIA oil inventory data on Friday
(Rewrites throughout, adds analyst's quote, updates prices, changes dateline, pvs LONDON)
NEW YORK, Jan 2 (Reuters) - Oil prices fell by more than $2 on Thursday as Libya prepared to restart a major oilfield and on speculation of a sharp rise in crude stockpiles in Cushing, Oklahoma.
After ending last year almost unchanged from where they started, Brent futures led losses on a range of factors, including data showing slowing economic expansion in China, the world's no. 2 oil consumer, a stronger U.S. dollar and an approaching U.S. Northeast storm that may temporarily dampen fuel demand.
Libya's National Oil Corp (NOC) said on Thursday it plans to restart the El Sharara oilfield and hopes to resume output within days after protesters agreed to suspend a strike that has blocked the field since the end of October.
Libya's output is still less than 250,000 barrels per day (bpd), down from 1.4 million bpd in July.
Brent crude was down $2.19 to $108.61 a barrel by 11:33 a.m. EST (1633 GMT), dropping below the 50-day moving average of $109.17 for the first time in two weeks.
U.S. crude sank $2.03 to $96.38 a barrel, deepening losses after a report by industry group Genscape showed a 1 million barrel rise in stockpiles at Cushing, Oklahoma, the benchmark delivery point for U.S. oil futures, market sources said.
Official U.S. government data, due out two days later than usual at 11 a.m. EST (1600 GMT) on Friday due to the New Year's Day holiday, is expected to show a fifth consecutive draw in nationwide crude oil stockpiles.
Data from the American Petroleum Institute on Tuesday showed stocks fell last week by nearly double the expectation in a Reuters poll. The decline has been largely attributed to producers' attempts to avert taxes and is no match for U.S. production which has risen to a 25-year high, analysts said.
STORM WEIGHS ON FUEL FUTURES
Motor fuel prices matched crude's losses as a powerful storm expected to bring heavy snow and Arctic cold to the densely populated U.S. Northeast will likely force motorists off the road, said Stephen Schork, editor of the Schork Report in Villanova, Pennsylvania.
"I think with gasoline it could potentially be 70 million (people) in the path of two converging snowstorms and that will impact demand," he said. "It's already happened in the Midwest."
U.S. ultra low-sulfur diesel (ULSD) futures fell 4.14 cents to $3.0238 per gallon while RBOB gasoline futures fell 4.41 cents to $2.7418.
IRAN AND THE DOLLAR
Adding to pressure on oil, growth in factory activity in China slowed in late 2013, according to purchasing managers' indexes published by the government and HSBC, weighed by shrinking export orders.
A stronger dollar also pressured prices as dollar-priced commodities become more expensive for holders of other currencies. The U.S. dollar index a measure of the dollar's strength against a basket of currencies, rose to a two-week high.
The market also eyed potential increased oil output from Iran. The Islamic Republic and six world powers will implement an agreement in late January obliging Tehran to suspend its most sensitive nuclear work, an Iranian official was quoted as saying on Tuesday.
That raises the prospect of an increase in Iranian crude exports over 2014, some analysts said.
(Additional reporting by Peg Mackey in London and Florence Tan in Singapore; Editing by William Hardy, Anthony Barker and Meredith Mazzilli)