Oil falls below $64 after Nigerian hostage release

LONDON, Mar 27 (Reuters) Oil prices fell below on Monday as Nigerian militants freed three foreign oil workers held hostage for five weeks, but threats of further attacks limited bearish sentiment.

U.S. light crude for May delivery slipped 53 cents at .73 a barrel by 1243 GMT (1813 IST). The contract on Friday settled at .26 a barrel, the highest since Feb. 7.

London Brent crude fell 48 cents at .03 a barrel.

The release of two Americans and a Briton, employees of U.S. oil service company Willbros, raised hopes for an end to three months of sabotage and kidnapping in the world's eighth largest oil exporting country that has cut shipments by a quarter.

The men were handed to the governor of Nigeria's southern Delta state by an ethnic Ijaw leader, who had been negotiating with the militants on behalf of the government.

''(The three) are in very good health and high spirits,'' said Abel Oshevire, a spokesman for Delta state. ''Of course, they are a bit agitated after a month in captivity.'' But the militant group, the Movement for the Emancipation of the Niger Delta, said the hostage release did not signify an end to attacks on the OPEC member's oil facilities.

On Saturday, they claimed responsibility for killing three soldiers in a remote area close to a major natural gas plant.

The group seeks a greater share of the region's huge oil wealth, the release of two jailed Ijaw leaders and compensation for oil pollution.

About 26 per cent of Nigeria's oil output, or about 630,000 barrels per day, has been cut, mainly due to militant attacks.

A spokesman for Royal Dutch Shell, the biggest oil operator in Nigeria and the company most affected by the violence, declined to say when production would resume.

Oil prices have traded between and for more than a month as traders balanced geopolitical risks with bumper U.S.

fuel supplies.

''Not only do traders need very bullish news to add some long positions above , but they need to expect them to affect the supply-demand balance for more than a few weeks,'' Frederic Lasserre of Societe Generale said in a research note.

China, whose thirst has been the main driver behind record oil prices, recorded a 4.4 increase in oil demand in February compared to a year earlier. That was the biggest leap since October as buyers and wholesalers stocked up ahead of an increase in retail prices for fuel.

The looming spring planting season, when farmers need diesel to fuel their tractors, helped boost demand to 6.61 million barrels per day (bpd) -- well above the 6.16 million bpd average last year when China disappointed with tepid growth.

REUTERS SD VC1946