By Florence Tan
SINGAPORE (Reuters) - Brent crude dropped below $108 a barrel on Monday as traders focused on a surge in Saudi exports in the third quarter, while hopes that a resumption of talks between sanctions-hit Iran and major powers may lead to more oil supply also weighed.
But internal strife in Libya and expectations that U.S. economic stimulus would continue for now supported prices.
Investors were also assessing how energy reforms pledged by China late last week would impact oil and gas demand in the world's largest net oil importer.
January Brent crude had dropped 61 cents to $107.89 a barrel by 0829 GMT, while U.S. crude for December delivery was down 39 cents at $93.45.
"The Middle East risk premium has wound back quite a bit probably because there is less potential for major supply declines with constructive news from Iran," said CMC Markets chief analyst Ric Spooner in Sydney.
Brent rose 3.2 percent last week after France blocked a deal with Iran and on signs the United Sates would continue its accommodative monetary policy.
Major world powers and Iran will engage in another round of talks in Geneva on November 20-22.
"One should probably not be too cynical and have one's mind open to the possibility of constructive developments over time," said Spooner of CMC Markets.
Sanctions against Iran because of its disputed nuclear programme have kept some 1 million barrels of oil per day off the global market. Any deal among nations could mean sanctions would be lifted, depressing prices in a well supplied market.
Saudi Arabia has raised output to a record level while cutting summer domestic demand by 10 percent -- both of which helped the top exporter boost overseas sales in the third quarter to the highest in nearly eight years.
But tensions in Libya helped keep a floor under oil prices. The country's deputy intelligence chief was kidnapped on Sunday, highlighting the country's internal strife which has sharply reduced its oil exports.
"Continued supply outages, a weaker-than-expected U.S. dollar, and investor positioning have supported the Brent market early fourth quarter, but we continue to find Brent's risk-reward unappealing," Morgan Stanley analysts said in a note.
"With supply returning in the North Sea, weak refinery margins and anemic demand, we find little upside for oil prices."
Investors are now waiting for minutes of the U.S. Federal Reserve's October meeting for hints on when it might start paring its asset-buying programme. Fed Chairman-nominee Janet Yellen signalled last week the central bank would need stronger evidence of economic growth before tapering.
U.S. oil futures posted their sixth straight week of losses last week as rising local supply widened their gap with Brent to about $14 a barrel ahead of the U.S. December contract's expiry on Wednesday.
Money managers cut their net long U.S. crude futures and options positions in the week to November 12 for the second week in a row, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
