Brent oil hit a three-month low on Friday, extending losses for the third week in a row as fears about supply shortages in the Middle East and North Africa continued to recede.

The North Sea benchmark slipped below $107 per barrel, posting its steepest weekly decline since January, as evaporating geopolitical risk drove selling. The drop also hit U.S. crude futures, which fell to a two-month low under $101.

"We continue to see some liquidation selling in the market," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. "But there is still uncertainty surrounding Iraq, and that means the market should find some support."

Brent lost $2.01 to settle at $106.66 a barrel, the lowest since April 7. It has dropped about 3.7 percent since the beginning of the week, the steepest slide since early January.

U.S. crude lost $2.10 cents to settle at $100.83, the lowest since May 12. It is down about 3.2 percent since the beginning of the week, the sharpest drop in almost two months.

The spread between the two benchmarks closed at $5.83, down from a three-month high of $9.01 hit in mid-June.

The benchmarks hit a nine-month high in June as a Sunni Islamist insurgency swept across northwestern Iraq, fueling concern over supply disruptions from OPEC's second-largest producer.

Oil has weakened over the last month because Iraq has not had any disruptions, and as news emerged that Libya was set to ramp up oil production. Libya's southern El Sharara field has pushed the country's oil output to 350,000 barrels per day, a spokesman for National Oil Corp said.

"Libyan oil production is already on the rise, and this is reflected in the structure of the Brent market," said Tamas Varga, an oil analyst at London brokerage PVM Oil Associates.

In Iraq, oil exports from the southern Basra ports continue, despite fighting in the north between Islamist militants and forces loyal to Baghdad.

Meanwhile, Kurdish forces took over two northern Iraqi oilfields, Bai Hassan and Kirkuk, replacing Arab workers with Kurds.

"If those supplies can flow, the market may be moving from relative tightness to relative oversupply," said John Kilduff, a partner at Again Capital LLC in New York.

MARKETS WELL SUPPLIED

Output remains at risk in several key regions, the International Energy Agency (IEA) said in its monthly report on Friday.

"Supply risks in the Middle East and North Africa, not least in Iraq and Libya, remain extraordinarily high," the IEA said. "Oil prices remain historically high and there is no sign of a turning of the tide just yet."

Global demand will accelerate next year as the world economy expands, the same report said. Growing demand will again be met by rising supplies from the United States and Canada, further eroding OPEC's market share, it added. 

(Additional reporting by Rowena Caine in London; Editing by Jason Neely, Jessica Resnick-Ault, Marguerita Choy and Andre Grenon)