Oil falls as Middle East tension eases

By Anna Louie Sussman

NEW YORK (Reuters) - Brent crude oil fell in volatile trading on Friday, on track for its third straight weekly loss as diplomatic strides on Iran's nuclear program and Syria's chemical weapons drained geopolitical risk premium from the markets.

Encouraging comments on Friday from Iranian President Hassan Rouhani, who said he wanted talks with major powers on Iran's nuclear program to yield "tangible results" in a short period of time, revived the prospect of an eventual flow of Iranian crude to the market.

The United States and Russia have agreed on a draft U.N. Security Council resolution aimed at eliminating chemical weapons in Syria. The U.N. Security Council will vote on the resolution on Friday.

Libya's crude oil output has stabilized at around 650,000 bpd after its western fields resumed production this month but the main eastern oil facilities remain closed, a senior National Oil Corp (NOC) official said on Friday.

"There's no worry about supply in Brent, there's no major worry about U.S. crude either, so the biggest problem we're looking at is the geopolitical front," said Dan Flynn, a trader and analyst at the Price Futures Group in Chicago, Illinois.

Brent crude oil for November fell 80 cents to $108.41 by 1:02 p.m. EDT (1702 GMT) after earlier losing more than $1 to a session low of $108.10.

Brent rose briefly around 10:15 a.m. EDT following a report that workers at the 210,000-barrel-per-day refinery in Grangemouth, Scotland, and the attached chemical plant have voted in favor of strike action over owner Ineos's treatment of a worker at the center of a disciplinary action, the union said on Friday.

U.S. crude for delivery in November also fell in choppy trading, losing 36 cents to reach $102.69, on track for its third straight weekly loss. The domestic benchmark hit a session low of $102.36, near its 100-day moving average of $101.99.

The U.S. RBOB gasoline futures contract lost over one percent of its value, or 3 cents per gallon, ahead of its Monday expiration.

A Reuters poll of 32 analysts showed Brent crude is expected to average $107.70 a barrel this year.

The North Sea benchmark, which peaked above $117 a barrel in August on concerns the war in Syria would spiral out of control and hit Middle East oil output, has traded at an average of $108.49 per barrel so far this year.

Diplomatic efforts over Syria and Iran helped ease worries about risks to supply from the Middle East, draining around $8 of risk premium from both benchmarks' highs at the end of August.

Although Syria is not a major oil producer, any escalation of tension in the Middle East could disrupt flows from a region that supplies nearly a third of the world's oil.

Talks progressed between the West and Iran over the latter's nuclear ambitions, which had prompted sanctions against Tehran. Iran and the United States held their highest-level substantive talks in a generation on Thursday.

While comments by new Iranian President Hassan Rouhani have calmed some oil investors, analysts say increased Iranian crude exports are unlikely to happen any time soon.

The West's standoff with Iran over the OPEC nation's nuclear program has buoyed oil prices for nearly a decade. Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day (bpd).

(Additional reporting by Christopher Johnson in London, Jacob Gronholt-Pedersen in Singapore; editing by James Jukwey, Keiron Henderson and David Gregorio)