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UPDATE 7-U.S. oil slips on warm-up, demand for diesel wanes

Elizabeth Dilts
Tuesday, 25 Feb 2014 | 12:37 PM ET

* U.S. crude stocks likely rose 1.4 mln bbls last week-poll

* Distillate stocks seen down 1.5 mln barrels

* Libya puts ministries under special budget rules

* Coming up: API data Tuesday at 4:30 p.m. (EST) (1930 GMT)

(Rewrites throughout, adds analyst commentary, updates prices, changes dateline & byline, pvs LONDON)

NEW YORK, Feb 25 (Reuters) - U.S. crude oil fell more than $1 per barrel on Tuesday on expectations that inventories are building and diesel demand is falling as winter weather eases.

Brent crude fell also, though not by as much, as traders weighed more signs of slowing growth in China against persistent oil production outages in Libya and South Sudan that have supported the European benchmark's prices.

U.S. commercial crude oil inventories likely rose last week by 1.4 million barrels, according to a Reuters poll Monday, which would be the second week of gains.

Meanwhile, the severe winter cold that has driven heating oil demand higher and bolstered oil in recent weeks started to thaw, triggering a sell-off in the market, analysts said.

"We are looking at an intra-season moment where there is a question about product demand as the winter demand eases," said Rich Hastings, macro strategist at Global Hunter Securities.

Brent crude fell 80 cents to $109.85 a barrel by 11:25 a.m. EST (1625 GMT), after settling at its highest for the year in the previous session. U.S. oil dropped $1.26 to $101.56.

Brent's premium to U.S. crude <CL-LCO1=R> widened to $8.34. On Monday, the spread narrowed to a nearly five-month low of $7.04, but failed to pass several key resistance levels around $7, analysts said.

The U.S. dollar rose sharply on comments from a top Federal Reserve regulator that the Central Bank will likely maintain a policy of monetary tightening in the future, which also weighed on U.S. crude and commodities priced in the dollar.

Ahead of data from industry group the American Petroleum Institute released later on Tuesday, a Reuters poll forecast stocks of distillates, including heating oil and diesel, and gasoline each fell 1.5 million barrels on average last week.

RBOB gasoline prices for March were down more than 2 cents at $2.8097 per gallon. The contract expires on Friday.

Worries of slower growth in China worsened on Monday on Chinese news reports that banks had stopped extending loans to property-related companies. China CSI300 share index tumbled 2.6 percent in its biggest single-day decline since July 2013.

Libya has put some government departments under special spending rules as a slump in oil revenue has hampered the drafting of a budget for this year. Protests at oilfields and ports have knocked oil production down to 230,000 barrels per day (bpd) from 1.4 million bpd in summer.

Fighting in South Sudan has seen oil output fall by a third since December to about 170,000 bpd last week.

(Additional reporting by Lin Noueihed and Shadi Bushra in London and Manash Goswami in Singapore; Editing by Mark Heinrich and Marguerita Choy)