Update: Brent Dips on Weak Demand Outlook

Brent oil futures dipped towards $107 a barrel on Friday following a weaker outlook for 2014 global demand growth from the International Energy Agency and due to expectations that more Libyan crude will reach the market next week.

Brent crude was down 8 cents at $107.38 a barrel by 1338 GMT after settling 52 cents lower on Thursday. The contract was on track to end the week about 0.5 percent higher, recouping part of the previous week's losses.

U.S. oil was up 3 cents at $103.43 a barrel and was set to end the week about 2 percent higher. The U.S. oil complex was lifted by a sharp, unexpected fall in U.S. gasoline inventories on Wednesday due to robust demand.

"Although oil prices are currently heading for a weekly gain the market is starting to show signs of setting a short-term price peak," Dominick Chirichella, an analyst at the Energy Management Institute, said in a note.

The most notable move in the oil complex this week has been the narrowing of the spread between Brent and U.S. crude, which touched $3.88 a barrel on Friday, a new low since September 2013.

In contrast, outright prices had been confined to a very tight range, as competing fundamental factors have offset each other. "Supply/demand is pretty well-balanced," said Christopher Bellew, a broker at Jefferies Bache in London.

Both contracts sold off on Friday after the IEA said in a monthly market report that global demand growth would average 1.29 million barrels per day (bpd) in 2014, down 60,000 bpd from its previous forecast.

This followed a similar trimming of the demand forecast by the Organization of the Petroleum Exporting Countries (OPEC) in its monthly report on Thursday to 29.65 million bpd in 2014, down 50,000 bpd from the previous estimate.

Thursday's bearish crude oil import data from China, showing March imports at a five-month low, also continued to weigh on prices. Analysts said shipments could drop further in the second quarter as refineries enter peak maintenance.

On the supply side, the market has to allow for the possibility that Libyan oil exports may pick up next week if some of its oil ports reopen.

On Thursday Libya's state National Oil Corp lifted a force majeure for the eastern port of Hariga.

Analysts at JBC Energy in Vienna said in a note that this was "the strongest indication yet that a partial recovery in Libyan crude exports may be around the corner".

The country's two biggest ports, Es Sider and Ras Lanuf, remain blocked.

"If we actually see tankers leaving Libya, it could have an additional negative impact on Brent," Ole Hansen, senior commodity strategist at Saxo Bank, said. "There have been so many false starts over the resumption of Libyan oil exports that the market is in wait-and-see mode."


Further Sanctions Mooted
Tensions between Russia and the West over Ukraine were also keeping a floor under prices. Russian President Vladimir Putin warned European leaders on Thursday that Russian gas supplies to Europe could be disrupted if Moscow cuts the flow to Ukraine over unpaid bills.

U.S. President Barack Obama and German Chancellor Angela Merkel have discussed further sanctions for Russia, calling on Moscow to move its troops back from the border region.

"Ukraine tensions are playing a role because there are higher risks of more severe sanctions against Russia affecting oil and gas supplies," said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt.

"It is hanging over the market and not giving the sellers much appetite to be short," Saxo Bank's Hansen agreed.

By Claire Milhench

(Additional reporting by Manash Goswami in Singapore; editing by Jason Neely and Keiron Henderson)