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RPT-UPDATE 4-Oil falls below $107 as supply outlook improves

Christopher Johnson
Thursday, 16 Jan 2014 | 7:58 AM ET

(Repeats to fix transmission error)

* Nuclear talks offer chance of more Iranian oil

* Libyan oil supply also higher

* U.S. crude stocks rise more than expected

* Coming Up: U.S. jobs data at 1330 GMT

LONDON, Jan 16 (Reuters) - Brent crude oil fell below $107 a barrel on Thursday as expectations of more supply from the Middle East and North Africa outweighed news of a large drop in U.S. crude stockpiles.

Huge volumes of crude from Iran and Libya have been blocked by political and civil disputes, but both countries may soon be able to send more into world markets that are already well supplied.

Worries that the extra supply will tip the oil market into surplus are outweighing signs of accelerating global economic growth and increasing fuel demand, analysts say.

"In the short term, Brent crude oil appears to be heading lower," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.

"Oil prices have resisted a strong upward move in stock markets over the last month. That is a bearish sign."

Brent crude for February delivery was down 20 cents at $106.93 a barrel by 1125 GMT, after settling 74 cents higher on Wednesday. The contract was due to expire later on Thursday.

U.S. crude was up 30 cents at $94.47, after ending up $1.58 in a third straight day of gains on Wednesday. The February contract expires next Tuesday following a long U.S. holiday weekend.

Iran and world powers are due to begin talks in February on a deal to end a dispute over the Islamic republic's nuclear programme, which could include the easing of sanctions that are blocking up to 1.2 million barrels per day (bpd) of its oil exports.

Under a preliminary accord that goes into effect on Jan. 20, Iran's oil exports are to hold at current levels of about 1 million bpd.

A resolution of the nuclear dispute, seen likely by some analysts, would bring huge volumes of Iranian crude into the oil market and bring a glut unless other oil producers cut output.

Libyan oil supply could also rise sharply this year.

Libya's southern El Sharara oilfield resumed production last week, increasing supply from the North African producer by more than 300,000 bpd. Output would rise even further if a blockade of Libya's eastern oil ports were to end.

U.S. crude oil found some support from data showing U.S. crude oil inventories fell 7.7 million barrels last week, compared with estimates of just 600,000 barrels. It was the largest seven-week fall since records began.

The drop helped extend gains in U.S. oil.

Brent's premium to U.S. crude continued to narrow, due to the expected start next week of the southern leg of the Keystone pipeline in the United States. The pipeline should help ease a supply glut at Cushing, Oklahoma, where the West Texas Intermediate crude contract is priced.

The spread <CL-LCO1=R> reached a low of $12.42 on Thursday, the smallest gap in nearly two weeks.

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