Oil Slips on China PMI; Libya in Focus

Oil slipped below $108 a barrel on Monday, as a survey showing activity in China's manufacturing sector contracted for a fourth month and signs of progress in restoring some of Libya's oil output outweighed rising tension in Ukraine.

The HSBC/Markit purchasing managers' index added to questions over whether the Chinese economy is still losing momentum. In Libya, tribesmen ended a blockade of the El Sharara oilfield and engineers hoped to resume pumping within a week.

"Libyan production is going up marginally," said Carsten Fritsch, analyst at Commerzbank in Frankfurt. "If production (at El Sharara) can be resumed, this would significantly increase Libyan oil production and weigh on the Brent price."
 

Brent crude for June delivery was 80 cents lower at $107.79 a barrel by 1332 GMT, after settling 83 cents higher on Friday. U.S. crude was down 10 cents at $99.66, having risen 34 cents on Friday.

Tensions in Ukraine limited the decline in prices. Pro-Russian militants stormed a Ukrainian police station in Odessa on Sunday and freed nearly 70 fellow activists. Last week, more than 40 pro-Russian activists died in a blaze at a building they had occupied after clashes with pro-Kiev groups.

"There hasn't been any lessening of tensions in Ukraine, which is keeping the geopolitical premium in the market," said Christopher Bellew, a broker at Jefferies Bache in London. "Prices have gone back into the trading range of about $107.50 to $110 for Brent."

Tension in Ukraine matters to energy markets because Russia has said it would reduce natural gas supplies to Ukraine in June if no prepayment is received this month, raising concern that energy supplies to the European Union could be affected.
 

Russia meets a third of the EU's gas demand, and almost half of that passes through Ukraine. Russia also ships crude oil through Ukraine to countries in Eastern Europe via the Druzhba pipeline.
 

The disappointing survey on China, the world's second-biggest oil consumer, came after a report showing the U.S. economy - the top oil consumer - added 288,000 jobs in April, more than expected, which had helped to lift oil prices on Friday.

(By Alex Lawler, Reporting by Alex Lawler and Jacob Pedersen; editing by Jason Neely and Keiron Henderson)