* Libya raises oil output to 535,000 bpd
* Kurdish, U.S. forces make progress in Iraq against militants
* Oil prices fall after spike on Friday
By Jacob Gronholt-Pedersen
SINGAPORE, Aug 18 (Reuters) - Brent crude fell below $103 a barrel on Monday as Libya increased its oil output and as worries over supply from key producer Iraq eased.
The drop came following a jump of more than $1 a barrel in benchmark prices on both sides of the Atlantic on Friday amid fresh tensions in Ukraine, where government forces engaged a Russian armoured column.
"There was a scare on Friday, but investors realised over the weekend that geopolitical threats are becoming less serious," said Avtar Sandu, a senior commodities manager at Phillip Futures in Singapore.
"We have a situation where inventories and supplies are rising. So with geopolitical risks seemingly easing, people don't want to hold long positions," he said.
Brent crude for October delivery had fallen 65 cents to $102.88 a barrel by 0324 GMT. The contract closed $1.52 a barrel higher on Friday.
U.S. crude for September delivery was 46 cents lower at $96.89 a barrel, after ending the previous session up $1.77 a barrel.
Libya's oil production rose to 535,000 barrels a day (bpd) on Sunday from 400,000 bpd earlier in the week due to higher output at the southwestern El Sharara, El Feel fields, a spokesman for National Oil Corp (NOC) said.
Even though oil ports in the east have reopened, oil production in the North African state is still way off the 1.4 million barrels per day it produced last year before a series of strikes, protests and blockades slashed output to as low as 200,000 bpd.
"Libya is something of an enigma for oil markets. The production volumes are still quite small, and let's see how many ships actually load at the reopened ports," said Sandu.
U.S. AIR STRIKES
In Iraq, Kurdish fighters pushed to retake Iraq's largest dam on Sunday and the United States conducted a second day of air strikes in the area in a drive to reverse gains by Islamic State insurgents who have overrun much of the country's north.
The fighting in Iraq has yet to affect oil supplies from southern oil ports. In the north, Iraqi Kurdistan has delivered its third major cargo of crude oil, showing the autonomous region is finding more buyers despite legal pressure from Baghdad.
In what could be a breakthrough in Ukraine's efforts to crush pro-Moscow separatists, Ukrainian forces have raised their national flag over a police station in the city of Luhansk that was for months under rebel control.
The four-month-old conflict in Ukraine's Russian-speaking east has reached a critical phase, with Kiev and Western governments watching nervously to see if Russia will intervene in support of the increasingly besieged rebels. (Reporting by Jacob Gronholt-Pedersen; Editing by Joseph Radford)