UPDATE 10-Brent oil down $1, heating oil, increased supply weighs

Tue Feb 11, 2014 2:40am IST

* Markets expect U.S. economic stimulus to continue

* Weak diesel cash prices weigh on oil

* Libyan oil production rises to 600,000 bpd

* North Sea oil loadings to dip in March (Adds Reuters/EIA poll, updates to settlement prices)

By Jeanine Prezioso

NEW YORK, Feb 10 (Reuters) - Brent oil fell by nearly $1 per barrel on Monday, pressured by sinking heating oil prices as the market looked toward the end of a long and frigid winter and as supplies increased from Libya and the North Sea.

Investors also awaited direction from the new head of the U.S. Federal Reserve on the course of the central bank's monetary policy.

Intense and relentless cold has propped up oil prices as demand for heating fuels skyrocketed and refiners pumped out distillates. Temperatures in large cities are expected to moderate next week, curbing demand for heating fuels, even as another snowstorm is expected in the U.S. Northeast this week.

U.S. natural gas prices lost more than 4 percent on Monday. U.S. heating oil futures slipped 1.7 percent to settle at $2.9981 per gallon, pressured by weak diesel cash prices that also weighed on oil, said Stephen Schork, editor of the Schork Report in Villanova, Pennsylvania.

"This is a lack of follow through from Friday's spike, coupled with weak cash markets," Schork said. "People are just bailing on crude right now.

March Brent crude settled 94 cents lower at $108.63, after reaching a high of $109.75, its loftiest since Jan. 2. The March contract expires at the end of trading on Thursday. Brent oil for April settled 89 cents lower at $107.96.

U.S. crude ended 18 cents higher at $100.06, maintaining above $100 for the first time this year.

The spread between the two benchmarks widened earlier in the session to $10 for the first time in a week, then narrowed to settle at $8.57 per barrel CL-LCO1=R.

Traders and analysts polled by Reuters expect government data to show a large 3 million barrel build in U.S. crude oil inventories as U.S. refiners look ahead to the end of winter and enter maintenance season, curbing demand for oil.

Distillate stocks were expected to have fallen by 2.3 million barrels, reflecting steep demand for heating fuels last week.

In the meantime, Fed chief Janet Yellen delivers her first testimony to Congress this week and markets expect her to indicate she will stay the course on tapering the Fed's bond buying program.

The Fed has been cutting its bond purchases by $10 billion a month as the U.S. economy has strengthened. The bond buying program has provided support for commodity and equity markets.

In Europe, output at Britain's Buzzard oilfield returned to a normal rate of 200,000 barrels per day (bpd).

Buzzard, Britain's largest oilfield, will undergo a total nine weeks of maintenance in 2014, far more than the two weeks traders had expected. Lower North Sea loadings for March could also be interpreted as less demand for crude, which would weigh on Brent prices, analysts said.

Increased output from Libya, which was exporting 450,000 bpd, also pressured prices.

An easing of political tension over Iran's nuclear program could weigh on oil as supply from the OPEC producer may rise if Tehran reaches a final deal with world powers. Iran and six world powers are due to start a final round of talks on Feb. 18 that is aimed at reaching a broad diplomatic settlement.

Iran's military successfully test-fired two new domestically made missiles, one of them a long-range ballistic missile, the defence minister said on Monday, according to state television. (Additional reporting by Christopher Johnson in London and Florence Tan in Singapore; Editing by Dale Hudson, Jane Baird, Marguerita Choy, Peter Galloway and Chizu Nomiyama)

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