* U.S. oil output surged to highest level in 25 yrs in
* Global surplus oil capacity inches up in Jan, Feb -EIA
* Iran's oil fleet looks to come in from cold as exports
* Brent targets $107.85-$108.11 range -technicals
By Manash Goswami
SINGAPORE, Feb 28 Brent crude futures slipped
below $109 a barrel on Friday due to expectations that demand
growth will slow as severe winter weather eases, although supply
worries curbed losses for now.
The combination of a severe winter in the United States and
Europe along with worries over Middle East supply disruptions
supported prices in the early part of the year, helping the oil
market avoid the weakness seen in other risk assets such as base
Crude prices are set to come under pressure as demand for
heating fuels eases with the weather improving, and global oil
supplies appear to be more plentiful.
Brent crude fell 11 cents to $108.85 a barrel by
0755 GMT, after dropping 56 cents in the previous session. The
contract is set to end the week down 1 percent, the biggest drop
in four weeks; it has gained more than 2 percent in February.
U.S. oil dropped 31 cents to $102.09, and is set to
end the week slightly lower, snapping six straight weeks of
gains - the longest weekly winning spree in a year. WTI crude is
up nearly 5 percent for the month.
"Oil is not reacting like other risk markets because of the
winter and geopolitical tensions in the Middle East," said
Jonathan Barratt, chief executive of commodity research firm
Barratt's Bulletin in Sydney.
"As the weather improves, some shine on that will come off.
China's slowdown will compound it even more. The markets
shouldn't be here."
The U.S. benchmark is set to slip to below $100 a barrel,
Barratt said, adding the contract should ideally hold between
$85-$90 a barrel, reflecting the current demand outlook.
Brent is at the upper end of its range now, he said, and the
lower end of the range is $103, with support seen at $106.70.
Global spare oil production capacity inched higher in
January and February as demand eased, the U.S. government said.
The Energy Information Administration (EIA) said spare
output capacity, which is the amount of oil that global
producers can quickly bring on line without major investments -
a key factor in global crude prices - averaged 2.1 million
barrels per day in the last two months, or about 100,000 bpd
higher than in the previous 60 days.
U.S. oil production surged in 2013 to the highest level in
25 years as a boom in shale drilling boosted output, the EIA
Oil production for the year rose by nearly 1 million barrels
per day (bpd), its largest-ever annual increase, to hit an
output level of 7.46 million bpd, the highest since 1989, the
agency said in a monthly report.
"There is a lot of oil around even though we have
disruptions from a few exporters," said a trader with a western
trading house. "The immediate demand outlook isn't very strong
either, so we see oil prices remaining under pressure."
Prices are also under pressure on expectations of rising
exports from Iran. Asian buyers increased purchases of Iranian
crude by 22 percent in January from a year ago as the grip of
sanctions imposed since 2012 loosened following a landmark
agreement in November to curtail Tehran's nuclear programme.
China, India, Japan and South Korea together bought an
average of 1.25 million bpd last month, government and industry
The OPEC member's oil tanker fleet is gearing up for more
business, with some vessels taking to the high seas after
spending more than a year at home ports, in yet another sign an
easing in sanctions is enabling exports to pick up.
Ship tracking sources said that in recent weeks at least
three Iranian supertankers had made their first trips to Asia
after months at Iranian anchorages where they were storing
(Editing by Tom Hogue, Himani Sarkar and Simon Cameron-Moore)