Brent Drops Below US$103: China Data Weighs

Brent crude dropped below $103 a barrel on Monday, as a recent rebound in oil prices was checked by fresh data suggesting a slower growth in China's factory activity.

* China factory activity drops to 3-moth low in Aug
* Iraqi, Kurd forces gain on Sunni militants
* Libya output rises to 700,000 bpd
* Russia-Ukraine tensions rise, EU prepares new sanctions

Oil prices on both sides of the Atlantic registered a second straight month of losses in August, although prices gained around $1 a barrel towards the end of the month.

Growth in China's factory sector slipped to a three-month low in August as foreign and domestic demand cooled, an HSBC survey showed on Monday, muddying the outlook for demand from the world's key consumer of most commodities.

"A fair bit of weak sentiment around China has already been priced in," said Ankit Pahuja, a commodity strategist at ANZ investment bank.

Brent crude was 23 cents lower at $102.96 a barrel by 0656 GMT. The contract gained 73 cents on Friday. U.S. crude traded 30 cents lower at $95.66 a barrel, after settling up $1.41.

Floor trading in the United States is closed on Monday for the Labor Day holiday.
"Stockpiling trends continue to support Chinese crude imports, despite weak domestic demand," analysts at Barclays (BCS) said in a note.

"And Strategic Petroleum Reserve requirements are still expected to be filled over the coming months, which could offset some of the weakness in imports that would have otherwise come from lacklustre domestic indications."
 

IRAQI AIR STRIKES
Geopolitical tensions continued to support oil prices, with Iraqi army and Kurdish forces closing in on Islamic State fighters on Saturday in a push to break the Sunni militants' siege of a town in northern Iraq, while the United States carried out air strikes there.

Exports from Iraq's southern oil port have remained unaffected by the fighting. Russia's Gazprom Neft (SIBN.ME) and Korea Gas Corp (KOGAS) said 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 sanctions imposed so far have not directly affected energy supplies.

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

"Our view is that oil prices will strengthen a little over the next month or so. Markets have been a bit complacent regarding supply risks, and probably overestimated return in supply from places like Libya and Iran," ANZ's Pahuja said.

Libya's oil production has ticked higher 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 what was reported early last week.

Iranian President Hassan Rouhani said on Saturday that new sanctions against Tehran over its nuclear programme "put into question the seriousness, honesty and good faith of negotiations with the U.S".
"They are in conflict with the spirit of talks. They are unconstructive in my opinion," Rouhani said at a news conference, although he later suggested there was still hope of reaching a deal by the Nov. 24 deadline.

By Jacob Gronholt-Pedersen