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* EU foreign ministers to discuss Russian sanctions
* Libya oil output slips to 450,000 bpd
* U.S. crude stocks expected to fall 2.8 mln bbls on week (Adds U.S. API data)
By Anna Louie Sussman
NEW YORK, July 22 (Reuters) - Brent and U.S. crude settled lower after a choppy trading session on Tuesday as oil supplies remained unaffected by continuing violence in Iraq, Ukraine and Gaza.
The European Union threatened Russia on Tuesday with harsher sanctions over Ukraine following the downing of a Malaysian airliner.
Israel pounded targets across the Gaza Strip on Tuesday, saying no ceasefire was near as U.S. and United Nations diplomats pursued talks on halting the fighting that has claimed more than 600 lives.
"We have events flaring up on the main screen and there are still problems in the Gaza Strip, but the thing is, we still don't have a supply disruption," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. "The short-covering rebound of the previous days seems to be fading away and the market is retreating a little."
Brent crude for September delivery fell by 35 cents to settle at $107.33 a barrel, after swinging between $107.20 and $108.40.
U.S. oil for August delivery fell 17 cents to settle at $104.42 a barrel, down from a session high of $105.25.
The U.S. August contract expired on Tuesday. Its premium to September crude rose Tuesday to a session high of $2.50, reflecting traders' concerns about low oil inventories at the Cushing, Oklahoma, delivery point for U.S. crude.
U.S. crude oil for September settled at $102.39, down 47 cents.
Brent has largely traded between $105 and $112, and U.S. crude between $100 and $105 throughout July, after the benchmarks peaked above $115 and $107 respectively in mid-June.
In Libya, a spokesman for the National Oil Corporation said oil output had fallen to 450,000 barrels per day, a drop of almost 20 percent since last week, as escalating violence has curbed some operations.
Oil traders will turn their focus later to weekly U.S. commercial crude oil inventories, which are expected to have fallen by 2.8 million barrels in the week to July 18, according to a preliminary Reuters survey of four analysts.
American Petroleum Institute data released on Tuesday showed that U.S. crude inventories fell just 555,000 barrels last week to 374.7 million, as crude stocks at the Cushing, Oklahoma, hub fell by 1.4 million barrels.
The data was released ahead of the weekly inventory report from the U.S. Department of Energy's Energy Information Administration (EIA) due on Wednesday.
Domestic crude stocks fell by 7.5 million barrels the previous week, the biggest draw since January, caused by a sharp increase in refinery activity.
Refiners in the United States are paying the highest premiums in months for physical cargoes of coastal grades such as Light Louisiana Sweet WTC-LLS and Mars WTC-MRS as refiners bid for barrels.
Additional reporting by Lorenzo Ligato in New York, Rowena Caine in London, Jacob Gronholt-Pedersen in Singapore; Editing by Jane Baird, Gunna Dickson, Tom Brown, Jessica Resnick-Ault and Lisa Shumaker