NEW YORK Brent crude prices fell more than $1 a barrel on Friday, outpacing losses on U.S. crude and deflating the spread between the two contracts after it hit the widest level in a year this week.
Expectations of a looser market weighed on prices after a report by the International Energy Agency's (IEA) forecast higher supplies and declining oil consumption after concerns about North Sea oil supplies and Middle East tensions supported Brent for most of the week.
Brent and U.S. crude posted weekly gains of around 2 percent as turmoil in the Middle East, especially tensions on the border between Syria and Turkey, intensified and Europe continued to grapple with its debt crisis.
Money managers raised their net long positions during the week by over 7,000 contracts to top 196,000 during the week.
Oil markets have been balancing expectations of weaker fuel demand due to the struggling global economy against the risk of output disruptions from the Middle East in recent weeks.
Brent November crude fell $1.09 to settle at $114.62 a barrel, while U.S. crude for November delivery traded down 21 cents to settle at $91.86 a barrel.
Friday's moves narrowed Brent's premium to U.S. crude benchmark West Texas Intermediate to below $23 a barrel after it hit $23.69 on Thursday, the highest since October 2011.
Brent's premium to U.S. crude rose more than $8 a barrel since falling to $15.57 a barrel on September 19 as the European benchmark was squeezed by lower North Sea output.
November output of crude from the four crude stream underpinning the Brent crude benchmark -- Brent, Forties, Oseberg and Ekofisk, was expected to average 780,000 barrels per day, down from 871,000 bpd in October and close to September lows of 720,000 bpd.
The Brent/WTI spread narrowing was "reflecting possible profit-taking in the Brent-WTI spread after it earlier rose to its highest level in a year," Addison Armstrong, senior director at Tradition Energy, said in a note.
One trader said some investors in the spread play were booking profits ahead of the weekend, with so much uncertainty hovering over the market.
Tension between Turkey and Syria continued to build on Friday as Turkey scrambled two fighter planes to the border with Syria after a Syrian military helicopter bombed the Syrian border town of Azmarin.
Fighting along Turkey's border with Syria has repeatedly spilled over into Turkish territory in the past week.
The European Union (EU) provisionally approved new economic sanctions against Iran over Tehran's nuclear program, with senior diplomats giving their backing to measures against Iran's banking sector and industry.
The IEA said that Iran's oil production has fallen to the lowest in more than two decades, with the decline attributed to Western sanctions.
U.S. GASOLINE, HEATING OIL PULL BACK
U.S. gasoline and heating oil futures fell, with gasoline retreating more than 2 percent and testing support below $2.8790 a gallon, its 100-day moving average, a technical level monitored by chart-watching traders and analysts.
Heating oil futures fell more than 1 percent, but was retreating from a seven-month peak above $3.26 a gallon on Thursday.
U.S. distillate stocks, which include diesel and heating oil, fell by 3.2 million barrels last week, the Energy Information Administration reported, far more than expectations.
Total U.S. distillate inventories are now 33 percent below the level of last October as refinery closures and higher exports have cut into domestic supplies. <EIA/S>
IEA CUTS DEMAND EXPECTATIONS
The IEA cut its global oil demand growth projection for 2011-2016 by 500,000 bpd compared with its previous report, easing the pressure on OPEC to produce more oil. <ID: nL5E8LC5QJ>
The agency also cut its 2013 global oil demand projection by 100,000 bpd to 90.48 million bpd, citing lower consumption in Europe, the Americas and China.
"It seems like the market has reacted on the negative side. Crude oil prices reversed from yesterday's gains amid concerns over confirmation of the global oil demand growth," said Myrto Sokou, a senior research analyst at Sucden Financial.
Graphic on WTI-Brent spread
Graphic on 24-hr Brent chart analysis
(Additional reporting by Alice Baghdjian in London and Florence Tan in Singapore; Editing by David Gregorio, Sofina Mirza-Reid and Marguerita Choy)