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UPDATE 3-Brent climbs toward $108 on Libyan supply worries

David Sheppard
Wednesday, 8 Jan 2014 | 4:37 AM ET

* Libyan rebels invite firms to buy oil from seized ports

* US crude stocks set to fall for 6th week -analysts

(Updates prices, adds details, changes dateline from SINGAPORE)

LONDON, Jan 8 (Reuters) - Brent crude oil rose towards $108 per barrel on Wednesday, supported by new worries over Libyan supplies and expectations for a drop in crude inventories in the United States.

Tensions in Libya escalated after a heavily armed eastern autonomy group said on Tuesday it would invite foreign companies to buy oil from seized ports and protect arriving tankers, in defiance of the government in Tripoli, which has vowed to stop them.

While Libyan officials say production could recover to nearly 600,000 barrels per day (bpd) this week, any attempt to export crude from ports without Tripoli's permission could lead to clashes.

"The situation looks quite uncertain, and I don't think exports will resume smoothly," said Tetsu Emori, a commodities fund manager at Astmax Investments.

Brent crude for delivery in February was up 25 cents at $107.60 a barrel at 0842 GMT, after settling up 62 cents on Tuesday. The contract edged above its 200-day moving average at $107.44, a key technical indicator watched by traders.

The Libyan defence ministry said it would destroy any tankers loading oil in the Cyrenaica region, where the ports are controlled by armed protestors led by tribal leader and 2011 civil war hero Ibrahim Jathran.

Libya's oil exports have fallen from more than 1 million bpd in July, when the strikes began, supporting international oil prices.

U.S crude was up 25 cents at $93.92 a barrel, after settling up 24 cents on Tuesday.

Brent's premium over U.S. crude held at $13.68, close to a month high.

CRUDE STOCKS DOWN

Oil prices also drew support from an expected drop in stockpiles in the United States.

U.S. commercial crude oil inventories probably fell by 900,000 barrels last week, a Reuters poll of analysts showed. This would mark a sixth straight week of declines and extend a near record drop in stocks.

"Despite ongoing strong crude production in the United States due to the shale oil and gas boom, the continuous fall in stockpiles denotes strong demand for the commodity," analysts at Phillip Futures said in a note.

Data from the American Petroleum Institute released late on Tuesday showed a much larger 7.3 million-barrel drop in crude stocks, though inventories at Cushing, Oklahoma - delivery point of the U.S. crude oil contract - rose by 1.2 million.

The more closely watched weekly inventory report from the U.S. Energy Information Administration is due at 1530 GMT.

Oil prices also took some support from frigid weather in North America, which boosted demand for heating oil and led to malfunctions and closures at at least five refineries in the United States and Canada.

A Canadian National Railway train carrying propane and crude oil derailed and caught fire on Tuesday in northwest New Brunswick, Canada, the latest in a string of train accidents that have put the fast growing North American crude-by-rail business under heavy scrutiny.

(Additional reporting by Jacob Gronholt-Pedersen in Singapore; editing by Jane Baird)