Oil prices dipped on Monday as signs of excess supplies of North Sea and West African crude and weak demand in Europe and Asia offset fears of escalating tensions in Ukraine and the Middle East.

Deepening discounts for physical North Sea and West African crude weighed more heavily on sentiment in the futures market, despite indications further sanctions against Russia, a major oil producer, would likely be coming later this week.

"The market is now focusing on weak fundamentals," said analyst Gene McGillian of Tradition Energy in Stamford, Connecticut. "If it wasn't for the geopolitical risk we priced in, the market would be at an even lower level."

September Brent lost 82 cents to settle at $107.57 a barrel, after reaching a low of $107.01 earlier in the session.

U.S. crude futures for September delivery lost 42 cents to settle at $101.67, up from an intraday low of $100.90.

North Sea crude oil cargoes for immediate lifting are trading at deep discounts to later ones, at more than $1.50 per barrel below the front futures month.

Traders reported about 30 million unsold barrels of West African crude for lifting in August, and September cargoes were already becoming available, further depressing the market.

Oversupply in the West African oil market was a bearish sign the global market was being pressured by weak refining margins and unseasonably low gasoline demand.

"Weak refining margins in all regions, including the United States, argue that the situation won't turn around quickly," said Michael Wittner, an oil analyst with Societe Generale.

Further pressure on oil prices came from reports that U.S. pending home sales fell 1.1 percent last month, an unexpected decline that cast a cloud over the housing market recovery.

GEOPOLITICAL TENSION

Despite minimal supply disruptions, global political tensions continued to underpin oil prices against the backdrop of weak fundamentals.

Brent and U.S. crude prices pared losses in the afternoon, as the market digested news that European leaders and the United States have agreed to impose further sanctions against Russia for its role in the Ukraine crisis.

A sanctions list of individuals and companies close to Russian President Vladimir Putin is expected to be released later this week, though most analysts see little risk the measures could curtail immediate oil shipments.

Meanwhile, tensions in the Middle East flared again as Israel warned Gaza residents to evacuate after Palestinian fighters launched an audacious cross-border raid.

Investors also kept an eye on Libya, where oil production fell nearly 20 percent to around 450,000 barrels per day, as violence continued to rip through Tripoli. 

(By Lorenzo Ligato; Additional reporting by Rowena Caine in London, Florence Tan and Theodora D'cruz in Singapore; Editing by Christopher Johnson, Lisa Von Ahn, Diane Craft and Paul Simao)