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Oil prices dip on faltering demand but Libya chaos threatens output

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Brent crude oil prices dipped on Monday as manufacturing growth faltered in Europe and China at a time of ample supply, although the risk of production setbacks remained high in Libya where the government has lost control of most of the capital.

Euro zone manufacturing growth slowed more than expected last month and factory activity in several key countries appeared to be stagnating. French factory output fell at its fastest in 15 months in August.

Chinese factory growth slipped to a three-month low in August as foreign and domestic demand cooled, and the country's huge construction sector is also seeing a slowdown, muddying the outlook for demand from the world's key consumer of most commodities.

'"In China, diesel demand growth has been pressured by a slowdown in construction activity linked with the ongoing property market correction, which our economists expect to continue,'' Barclays said in its latest Oil Market Outlook.

"Indian oil demand is growing faster than that of China so far this year,'' it added.

Brent crude was 47 cents lower at $102.72 a barrel by 1702 GMT. U.S. crude traded 10 cents lower at $95.86 a barrel, although floor trading in the United States was closed on Monday for the Labor Day holiday.

"Crude prices appear to have stabilized,'' said Michael Wittner, oil analyst at French bank Societe Generale.

Read MoreUkraine's Poroshenko says close to point of all-out war with Russia

"However, there are significant factors that will prevent a near-term price recovery,'' he added. "Exports of Libyan light sweet crude are growing, and increasing volumes of crude are being placed in storage, which will maintain downward pressure.''

Libya's oil production has increased in recent months, rising to 700,000 barrels per day (bpd), state-run National Oil Corp (NOC) said on Sunday, putting it 50,000 bpd higher than levels reported early last week.

But news the Libyan government has lost control of most ministries and state institutions in Tripoli after armed groups took over the capital has raised doubts over whether the recent output levels in the country can continue.

In Iraq, the army and Kurdish forces have been battling Islamic State fighters in a push to break the Sunni militants' siege of a town in northern Iraq, while the United States carried out air strikes near the town.

Read MoreEU wields Russia sanctions threat but timing vague

Yet exports from Iraq's southern oil port have remained unaffected by the fighting. Russia's Gazprom Neft and Korea Gas Corp (KOGAS) said on Monday they had started commercial production at the joint Iraqi Badra oilfield with initial output at 15,000 barrels per day (bpd).

In Russia, President Vladimir Putin called for talks on the "statehood'' of southern and eastern Ukraine, while his Ukrainian counterpart Petro Poroshenko said his country was close to all-out war with Russia.

The escalation could result in new Western sanctions against Russia, the world's biggest oil producer, although those imposed so far have not directly affected energy supplies.

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Head of Russian oil major Rosneft, Igor Sechin, said Russian oil and gas companies will honour their supply contracts, despite sanctions and tensions with the West.

Traders added that stuttering North Sea oil output was lending prices some support.

Output from Britain's Buzzard field, an important contributor to the Brent oil price benchmark, has stopped again after restarting last week as the field endures a hesitant return to full output after summer maintenance.

—By Reuters

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