Crude oil fell below $109 a barrel on Monday as higher output from Iraq and a possible thaw in U.S.-Iran relations weighed on prices, offsetting upbeat economic data from China and Europe.

Brent crude for November delivery was down 60 cents to $108.62 a barrel by 1250 GMT. U.S. crude for November slipped 57 cents to $104.18 a barrel.

Oil prices plummeted last week following the return of some supplies from Libya after weeks of unrest and as fears of U.S.-led military action against Syria faded.

Prices renewed the downward trend after Iraq, a key OPEC producer, said on Monday it boosted output from its southern oilfields after repairing a leaking pipeline.

And more oil is also coming from South Sudan as it raised output to the highest level since it resumed exports through Sudan.

"The return to the market of Libyan and South Sudanese supply is weighing on prices. South Sudan is currently producing 240,000 barrels of crude oil per day, the highest volume since oil production was shut down in January 2012," Commerzbank senior oil analyst Carsten Fritsch said.

The bearish mood was further supported by a possible groundbreaking meeting between the leaders of the United States and Iran on the sidelines of the United Nations gathering this week.

Iranian President Hassan Rouhani is aiming to set the tone for further nuclear talks with world powers which he hopes will bring relief from sanctions, according to diplomats and analysts.

Exports from Iran, one of the largest crude producers, have more than halved in recent years to around 1 million barrels per day in 2012 due to tightening sanctions.

"We have to watch the Iranian ball. Rouhani's visit to New York is going to be the key thing to watch because he wants to start the nuclear discussions on new grounds," said Olivier Jakob, analyst at Petromatrix.

"The process of removing the sanctions is still a little far but at least it pushes back the scenario of an attack on Iran," Jakob said.


China's flash HSBC Purchasing Managers' Index (PMI) hit a six-month high, putting to rest investors' worries of a sharp slowdown in the world's second largest economy.

In the eurozone, China's largest business partner, the Markit Flash Composite PMI showed business activity has grown faster than expected this month as new orders flood in at their fastest pace in over two years.

The U.S. PMI survey will also be released later on Monday. (Additional reporting by Florence Tan in Singapore; editing by Jason Neely and Keiron Henderson)