Brent crude oil traded at a one-month low under $109 a barrel on Wednesday after a Libyan oilfield restarted and supply worries faded, prompting traders to reduce long positions.
Libya has restarted the 340,000-barrel-per-day (bpd) El Sharara oilfield after protesters ended a four-month strike. This could double Libya's current crude output.
The government has also taken back control of the Ras Lanuf and Es Sider oil ports, ending an almost year-long occupation that reduced Libya's output to less than a quarter of the 1.4 million bpd it was pumping before protests began last summer.
Brent crude futures were down 15 cents to $108.79 per barrel at 1030 GMT, after hitting a one-month low of $108.41 in the session.
Brent is on course to fall for an eighth straight session in what would be its longest losing streak in more than four years.
The August contract is now trading at a discount of about 19 cents to the September contract.
US crude was up 3 cents at $103.37 per barrel. The price spread between the two benchmarks touched the narrowest point in almost a month at $5.20 earlier on Wednesday, driven by speculators dumping Brent.
"Subsiding supply risk is pushing prices lower," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt. He added that there was more speculative length to come out of the market. "The long positions in Brent are still at record levels, so a further correction is expected."
Christopher Bellew, a broker at Jefferies Bache in London, said there was no reason why Brent couldn't fall further, suggesting it might get down to $106 or $105 per barrel this week.
Fund managers and traders rushed into Brent when Islamic militants rampaged across Iraq in June. To date, the violence has had a very limited impact on crude exports, and now many are taking profits.
"Initially the risk premium was there, but eventually as the market realises the impact to actual supply is not there or limited, the premium comes off," said Abhishek Deshpande, an oil analyst at Natixis in London.
He added that the market appeared to have enough supply, with Saudi Arabia ramping up production. Saudi Arabia produced 9.78 million bpd of crude oil in June, up from 9.705 million in May.
At the same time there is weak demand for crude oil from European refiners, which have been struggling with weak margins due to an influx of diesel from the United States, Russia and Asia. This has prompted many to slash run rates, or undertake extensive maintenance at the height of the summer season.
"European refiners are having a bit of a tough time. There's a lot of product coming from the States into Europe, which has depressed refining margins and that's probably one of the reasons why crude is weak," said Bellew.
The US Energy Information Administration will release weekly crude oil stocks data on Wednesday.