* Brent up around 20 percent in third quarter
* Iran bans oil products transport to and from Iraqi Kurdistan
* Activity spikes in options market for $100 oil bets
* Middle East producers worry high price will boost U.S. shale (Recasts throughout, adds quotes, adds context, updates prices, changes byline, changes dateline, previous LONDON)
NEW YORK, Sept 29 (Reuters) - Oil prices were down slightly on Friday on weekend profit taking following a rally in prices around geopolitical instability in Iraqi Kurdistan, which helped Brent make its strongest third-quarter performance since 2004.
Global benchmark Brent crude was down 7 cents at $57.37 a barrel at 12:08 p.m. EDT (1607 GMT), notching up a third-quarter gain of around 20 percent. On the week, Brent was up 0.9 percent.
The contract had reached its highest in more than two years earlier in the week, resulting in a fifth consecutive weekly gain. This performance is Brent's longest weekly bull run since June 2016.
U.S. crude traded down 16 cents at $51.48 a barrel, on track for its strongest third quarter in 10 years and its longest streak of weekly gains since January. U.S. crude was up 1.6 percent on the week.
"Weve seen a strong rally in the past month on the expectation that we are seeing strong demand," said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut. "With the geopolitical risk in Kurdistan, Brent pushed to a two-year high. I think the market rally is looking to be a little overdone."
Iraq's Kurds endorsed secession by nine to one in a referendum on Monday that has angered Turkey, the central government in Baghdad, and other powers, which fear the vote could lead to renewed conflict in the oil-rich region.
Turkish President Tayyip Erdogan called the vote illegitimate and has threatened to break with past practice and deal only with the Baghdad government over oil exports from Iraq.
Iran has banned transportation of oil products by Iranian companies to and from Iraq's Kurdistan region, the semi-official Tasnim news agency said on Friday.
Most oil that flows through a pipeline from Iraq to Turkey comes from Kurdish sources and a cutoff would severely damage the Kurdish Regional Government, which relies on sales of crude for almost all its hard-currency revenues.
So far, oil flows through the pipeline have been normal.
Oil price gains have also been supported this month by anticipated renewed demand from U.S. refiners that were resuming operations after shutdowns due to Hurricane Harvey.
However, Middle Eastern oil producers are concerned the recent price rise will incentivize more U.S. shale production and push prices lower again.
In addition, oil output from the Organization of Petroleum Exporting Countries has risen this month by 50,000 barrels per day (bpd), a Reuters survey found, as Iraqi exports increased and production edged higher in Libya, one of the producers exempt from a supply-cutting deal.
(Additional reporting by Aaron Sheldrick in Tokyo and Karolin Schaps in London; Editing by Dale Hudson and Adrian Croft)