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UPDATE 1-Brent holds above $107 as supplies outweigh political tensions

* Brent set to end week nearly flat as liquidity dries up

Cushing inventories fall further, near minimum operating levels

* Libya oil production rises to 500,000 barrels per day

(Adds analyst quote; updates prices)

By Jacob Gronholt-Pedersen

SINGAPORE, July 25 (Reuters) - Brent crude held steady above $107 a barrel on Friday, on track to end the week flat as plentiful supplies held down any run-up in prices from geopolitical tensions in oil producing regions.

Oil prices have traded in a tight range this week with robust economic data from the United States, China and the euro zone also failing to push prices higher.

"It is very unusual that big geopolitical events such as Iraq, Ukraine and Gaza, which normally are very sensitive to the price of oil, almost haven't affected prices," said Jonathan Barrett, chief investment officer at Ayers Alliance in Sydney, noting that trading volumes have dropped off.

"The only conclusion we can draw is that the world is awash with oil," he said.

Brent crude for September delivery traded 10 cents higher at $107.17 a barrel by 0610 GMT. The contract had closed 96 cents lower on Thursday.

U.S. crude for September delivery was down 8 cents at $101.99 a barrel, after settling $1.05 lower.

Conflicts in Ukraine, Gaza and Iraq raged on, but failed to push prices higher as global supplies remained ample.

In Libya, oil production has risen to 500,000 barrels per day, but there is no progress on reopening Brega oil port after an agreement to end a protest there, a spokesman for state-run National Oil Corporation said.

Gazan authorities said Israeli forces shelled a shelter at a U.N.-run school on Thursday, killing at least 15 people as the Palestinian death toll in the conflict climbed higher than 760 and attempts at a truce remained elusive.

Members of the European Union on Thursday also considered proposals targeting state-owned Russian banks vital to Moscow's faltering economy in what would be the most serious sanctions so far over the Ukraine crisis.

U.S. ECONOMY, OIL INVENTORIES

Further supporting oil prices, U.S. Labor Department unemployment data suggested that the economic recovery remained on track, with initial weekly jobless claims falling to their lowest since February 2006.

However, the International Monetary Fund chopped its 2014 forecast for global economic growth to take into account weakness early in the year in the United States and China, the world's two biggest economies.

"The market seems to be quite happy to be in a range," Barrett said. "None of the big players are pushing the market 3/8 around. And if you don't have the volume in the market, it doesn't create the opportunity for large movements."

Oil inventories in Cushing, Oklahoma, fell another 163,000 barrels over the four days to July 22, data from Genscape Inc showed on Thursday, deepening a slump that has already dragged stockpiles to their lowest in six years.

Drawdowns at Cushing - delivery point for West Texas Intermediate contracts - have dropped stocks there to near what traders consider to be minimum operating levels, fueling a sharp rise in prompt U.S. crude oil prices.

Analysts at Morgan Stanley expect Brent to hover between $103 and $110 a barrel in the second half of the year compared to $109 in the first six months.

"We believe the risk to Iraqi supply is now behind us, leading to tapering of geopolitical risks in the near term. We expect incremental supply from Libya and West Africa to kick in shortly," the analysts said in a note.

(Editing by Tom Hogue)