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Supply risks from Libya, Ukraine to support Brent

Fears of supply disruptions coalescing from Libya, Russia and Iraq will keep benchmark Brent crude oil prices well supported above $109 a barrel this week, CNBC's latest survey of market professionals showed.

"Given the geopolitical tensions involving key oil producing countries, crude oil markets face meaningful tail risks to supply," UBS strategists Dominic Schnider and Giovanni Staunovo said in emailed comments to CNBC. "Spare capacity globally remains tight, which allows additional unplanned supply outages to move prices higher over a short period of time."

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Alexander Korolkov | AFP | Getty Images

Meanwhile, U.S. crude futures face pressure from another weekly build in domestic crude supply taking stockpiles to fresh highs.

"WTI should ease moderately and weaken against Brent, as the huge crude oversupply in the U.S. starts to gradually erode the hyper-focus on very tight Cushing stocks," said Michael Wittner, global head of oil research at Societe Generale. "It is becoming progressively harder to ignore the big picture for crude in the U.S."

But constructive U.S. economic data prints this week may take the edge of supply-led weakness, said Thina Margrethe Saltvedt, senior macro oil analyst at Nordea Markets in Oslo.

"If growth has returned to the pre-winter storm upward sloping trend I anticipate this will support higher demand expectations from the world's largest oil consuming country," she said.

Just under half of the respondents polled by CNBC (49 percent or 20 out of 41) said prices will rise this week, with 36 percent (15 out of 41) betting on a decline and 15 percent (six out of 41) saying prices will be little changed.

Ole Hansen, head of commodity strategy at Saxo Bank, said WTI Crude will likely trade in a $100 to $104 a barrel range and Brent crude in a $108 to $112 band.

IG Markets' data shows investor opinion is split on crude's near-term direction. Forty-five percent of IG clients with open positions on Brent crude expect prices to rise while 49 percent are looking for WTI crude to gain.

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'New equilibrium'

A price of around $100 for WTI "is the new equilibrium," said Chris Mennis, president of brokerage New Wave Energy LLC. "I think the relative stability of crude oil between $90 to $110 for about a year, is a sign of the 'Goldilocks' world economy, not too cold, not too hot."

Carl Larry, President of Houston-based consultancy Oil Outlooks and Opinions, said U.S. crude futures are finding "fair value" at around $102 to $104. "With WTI at a good discount to Brent, the refining margins and cost of products make exports from the U.S. the hot spot."

Brent crude posted its biggest daily fall in almost a month on Monday after Libya ended a suspension on crude exports from the 70,000 barrel-a-day eastern port of Zueitina after rebels agreed to hand over control of the facility to the government earlier this month.

Still, some market professionals treated the news with caution, saying they wanted to see evidence of tanker loadings to confirm the port was operational.

Furthermore, the deepening Russia-Ukraine crisis and fears that Moscow may respond to Western sanctions by halting gas exports to Europe will continue to prop up the price of Brent. Headlines from Iraq, which goes to the polls on April 30, offer further risk for upside price volatility.

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"The Libyan deal to re-open ports continues to drag on, the Russia/Ukraine crisis adds to geopolitical concerns, and there's likely to be heightened insecurity in Iraq around the elections—though probably no direct impact on oil production except on the northern pipeline, which is shut down anyway," said Robin Mills, Head of Consulting at Manaar Energy Consulting & Project Management in Dubai.