By Manash Goswami, Reuters
Brent crude futures slipped on Friday below $109 a barrel on expectations demand growth will slow as severe winter weather eases, with supply worries keeping the losses in check for now.
A severe winter chill in the United States and Europe and supply disruption worries from the Middle East have supported oil in the early going this year, bucking broad weakness across other risk assets such as base metals.
But with weather patterns improving, crude prices are set to come under pressure as demand for heating fuels eases. Global oil supplies also look to be rising.
Brent crude fell 20 cents to $108.76 a barrel by 0519 GMT, after dropping 56 cents in the previous session. The contract is set to end the week down 1 percent, the most in four weeks; it has gained more than 2 percent in February.
U.S. oil dropped 46 cents to $101.94, and is set to end the week lower, snapping six straight weeks of gains in the longest winning spree in a year. WTI crude is up nearly 5 percent for the month.
"Oil is not reacting like other risk markets because of the winter and geopolitical tensions in the Middle East," said Jonathan Barratt, chief executive of commodity research firm Barratt's Bulletin in Sydney.
"As the weather improves, some shine on that will come off. China's slowdown will compound it even more. The markets shouldn't be here."
The U.S. benchmark is set to slip to below $100 a barrel, Barratt said, adding the contract should ideally hold between $85-$90 a barrel, reflecting the current demand outlook.
Brent is at the upper end of its range now, he said, and the lower end of the range is $103, with support seen at $106.70.
Global spare oil production capacity inched higher in January and February as demand eased, the U.S. government said.
The Energy Information Administration said spare output capacity, which is the amount of oil that global producers can quickly bring on line without major investments - a key factor in global crude prices - averaged 2.1 million barrels per day in the last two months, or about 100,000 bpd higher than in the previous 60 days, the EIA said.
U.S. oil production surged in 2013 to the highest level in 25 years as a boom in shale drilling boosted output, the EIA also said.
Oil production for the year rose by nearly 1 million barrels per day (bpd), its largest-ever annual increase, to hit an output level of 7.46 million bpd, the highest since 1989, the agency said in a monthly report.
Prices are also under pressure on expectations of rising exports from Iran. The OPEC member's oil tanker fleet is gearing up for more business, with some vessels taking to the high seas after spending more than a year at home ports, in yet another sign an easing in sanctions is enabling exports to pick up.
Ship tracking sources said that in recent weeks at least three Iranian supertankers had made their first trips to Asia after months at Iranian anchorages where they were storing unsold oil.
(Editing by Tom Hogue)