* West mulls more sanctions on Russia's vital industries
* Iraq starts production at giant West Qurna-2 field
* Libya Mellitah condensate exports still blocked
By Florence Tan
SINGAPORE, March 31 Brent crude traded near a two-week high at above $107 a barrel on Monday as simmering tensions between Russia and the West offset a rise in oil supply from OPEC's second largest producer Iraq.
U.S. Secretary of State John Kerry and his Russian counterpart, Sergei Lavrov, discussed ways to defuse the Ukraine crisis during talks in Paris on Sunday, in which Kerry made clear Washington still considered Russian actions in Crimea "illegal and illegitimate."
Brent crude for May was at $107.84 a barrel by 0214 GMT, down 23 cents from Friday's settlement, the highest since March 14. U.S. crude for May delivery edged down 25 cents to $101.42 a barrel after settling at the highest since March 7.
"Rising oil supply doesn't seem to be having a negative impact as people are prepared to buy on dips, mainly because of the Crimea crisis," Ben Le Brun, a markets analyst at OptionsXpress in Sydney said. "There is still an element of a risk premium."
The West was considering more sanctions on Russia's vital industries including its oil and gas sector after the annexation of Crimea, while military manoeuvres kept investors on edge. Rising crude production from the United States and Iraq has capped price gains.
Front-month Brent is set to post its first quarterly decline in three quarters, down about 2.5 percent as rising supply from Iraq and increased exports from Iran have kept the market well supplied, offsetting disruptions in Africa.
Iraq has started production at the giant West Qurna-2 field, moving closer to its output target of 4 million barrels per day (bpd) this year.
Oil condensate flows from Libya's Wafa field to the western Mellitah port are still blocked, state-run National Oil Corp (NOC) said. Nigerian crude exports are set to fall to their lowest since 2009 due to a production outage for the Forcados grade.
Brent traditionally trades at a premium to WTI, and OptionsXpress' Le Brun said the Crimea crisis should have widened the premium.
Instead, front-month West Texas Intermediate prices are set for a 3 percent gain in the first quarter as new pipeline capacity drained oil from bloated inventories at the contract's delivery point in Cushing, Oklahoma.
U.S. crude oil exports that hit a 15-year high in January also helped eased a supply glut caused by booming shale oil output although exports remained severely limited by law. (Reporting by Florence Tan; Editing by Richard Pullin)