* Libyan output, exports continue to recover
* Conflict and unrest remain a risk to oil supply
* Coming up: weekly government data on U.S. inventories (Updates with API inventories)
By Anna Louie Sussman
NEW YORK, Aug 19 U.S. crude oil dropped nearly $2 on Tuesday, falling for a second straight day as a rush of selling ahead of the session close brought the contract to its lowest price since January.
U.S. front-month September crude fell sharply a day ahead of its contract expiration, hitting a session low of $94.27, its lowest in seven months, before paring losses to close at $94.48 a barrel, down $1.93.
"There were physical sellers into the close, and not enough buyers. It was pure fundamentals on the trading," said Bill Baruch, senior market strategist at iitrader.com in Chicago.
U.S. October crude fell by 89 cents to settle at $92.86.
Brent crude edged lower, notching a fresh 14-month low during Tuesday's session as the prospect of increased Iraqi and Libyan oil supplies weighed on the market.
Brent crude oil for delivery in October fell 4 cents to settle at $101.56 a barrel, after falling to $101.07, the lowest since June 2013, the same month Brent prices were last below $100 a barrel.
Several analysts said Brent was testing support around $101, noting the proximity of Tuesday's low to Monday's low of $101.11.
U.S. RBOB gasoline futures rose by more than 1 percent, after a report by industry intelligence company Genscape of decreased activity in a crude unit at Irving Oil Ltd's 300,0000-barrel-per-day refinery in St. John, New Brunswick.
PBF Energy Inc also reported flaring at its Delaware City, Delaware, refinery due to an external power disturbance.
Russia's Lukoil said on Tuesday it had shipped 1 million barrels of oil produced from southern Iraq's giant West Qurna-2 oilfield, its first shipment from the field, despite a surge of violence in Iraq.
Libya also was due on Tuesday to start loading its first crude oil tanker in a year from Es Sider port, and Libya's National Oil Corp said the country's oil production had risen to 562,000 bpd, up from 535,000 bpd last weekend.
Delegates from the Organization of the Petroleum Exporting Countries said the group is not worried about a slide in oil prices towards $100 a barrel, with current levels seen as acceptable for producers while higher seasonal demand in the coming weeks was expected to support the market.
Threats to supply remain however, as Iraqi forces halted their offensive to recapture Tikrit because of resistance from Islamic state fighters.
"There is still political risk out there, and certainly the Brent contract is vulnerable to that much more so than the U.S. crude contract," said Stephen Schork, editor of The Schork Report in Villanova, Pennsylvania.
British inflation eased more than expected in July after hitting a five-month high in June and U.S. housing starts rebounded strongly in July, while only a moderate increase in U.S. consumer prices suggested the Federal Reserve has room to keep interest rates low.
U.S. crude oil and refined product stockpiles were forecast to have fallen in the week to Aug. 15, a preliminary Reuters survey of analysts showed.
U.S. crude oil and product stockpiles fell last week, data from industry group the American Petroleum Institute showed on Tuesday.
Crude inventories fell by 1.4 million barrels in the week to Aug. 15 to 362.8 million, compared with analysts' expectations for a decrease of 1.2 million barrels. U.S. crude futures fell about 20 cents on the report's release, before paring losses.
Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.7 million barrels, API said.
The U.S. Energy Information Administration report is due at 10:30 a.m. EDT (1430 GMT) on Wednesday. (Additional reporting by Robert Gibbons in New York, Henning Gloystein and Alex Lawler in London and Jacob Pedersen in Singapore; Editing by Alden Bentley, Paul Simao, Chris Reese and James Dalgleish)