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UPDATE 8-Brent crude edges higher on Libyan tension

Anna Louie Sussman
Monday, 6 Jan 2014 | 1:23 PM ET

* Libyan national output could hit 600,000 bpd

* Slowing Chinese economy drags

* Bitter U.S. winter could hit demand, output

(Updates prices, recasts lead)

NEW YORK, Jan 6 (Reuters) - Brent crude oil edged higher on Monday in choppy trading as reports of restarted production at a Libyan oilfield, which hinted at more supply, were outweighed by doubts about its ability to reach markets.

Libya's armed forces warned they would not allow any oil tanker to load at ports seized by protesters. The Libyan Navy had blocked a Maltese-flagged vessel from trying to reach a dock and opened fire as it approached a port, officials said.

Brent rose over $1 early in the session before paring gains to seesaw near flat. The volatility followed the benchmark's biggest weekly fall in six months after the restart of the El Sharara oilfield following a two-month blockade by protesters.

The restart of the 340,000-barrel-per-day (bpd) field will more than double Libyan crude production, which had fallen to 250,000 bpd from 1.4 million bpd in July.

"We're still seeing most of the geopolitical risk hitting Brent, whether it be Libya or Iraq," said Phil Flynn, analyst at the Price Futures Group in Chicago.

On Monday, Iraq's prime minister urged people in the besieged city of Falluja to drive out al Qaeda-linked insurgents to pre-empt a military offensive that officials said could be launched within days.

U.S. crude futures extended losses for a fifth straight session, with traders citing ample domestic supplies of crude oil.

"I think it's a storage issue. There's a lot of crude oil out there," said Bob Yawger, director of commodities futures at Mizuho Securities in New York.

"You're getting a fading sense of support from equities. It shows there a certain degree of skepticism as far as the risk assets are concerned."

Brent crude futures for February rose 3 cents to $106.92 at 1:12 p.m. EST (1812 GMT) after earlier climbing over $1 to a session high of $107.96.

U.S. crude fell 54 cents to $93.42 per barrel. The contract lost $1.48 a barrel on Friday and posted its biggest weekly drop since June 2012.

DEEP FREEZE

Energy markets kept an eye on the weather in North America, where Midwestern states experienced the lowest temperatures in two decades and forecasters said life-threatening cold was heading east.

The severe cold weather sweeping across the mid-United States is threatening to curtail booming oil production as it disrupts traffic, strands wells and interrupts drilling and fracking operations.

Snow, ice and the sharp cold can limit gasoline demand and disrupt oil production and refining but also boost consumption of middle distillates such as heating oil.

Concerns over slowing growth in China put the brakes on gains in oil and other commodities.

Growth in China's services sector fell to a four-month low in December as business expectations dropped, a government survey showed, adding to evidence the world's second-largest economy lost steam at the close of 2013.

South Sudan's oil production remained a concern, even after the government and rebels last week agreed to peace talks. Three weeks of fighting have left more than one thousand people dead and disrupted the oil supply from the African country.

The talks could be delayed after gunfire erupted in the country's capital on Sunday.

An official in neighbouring Sudan, through which land-locked South Sudan pumps its oil for export, said last week that 239,000 bpd of crude were being shipped through its pipeline.

(Additional reporting by Jacob Gronholt-Pedersen; Editing by Joseph Radford, David Goodman, David Evans, Steve Orlofsky and Jeffrey Benkoe)