* Brent on track for second straight weekly drop
* Cyprus fails to win Russia support on loans
* Coming Up: U.S. CFTC positions data; 1930 GMT (Updates throughout, previous SINGAPORE)
By Jessica Donati
LONDON, March 22 (Reuters) - Oil prices held above $107 a barrel but were headed for a second week of losses on Friday as the lack of a solution to the financial crisis in Cyprus loomed over investors.
Russia turned down appeals for aid, leaving the island to strike a bailout deal with the European Union or face a collapse, with potential knock-on effects for others in the zone and ultimately demand for oil.
Brent crude for May delivery was down 3 cents at $107.44 a barrel by 1010 GMT, and looked set to post a fall of more than 2 percent this week.
U.S. crude for May was at $92.64, up 19 cents.
Some analysts, however, said the reaction to the crisis in Cyprus was overblown and other fundamental factors had contributed to losses in the oil market this week.
Adding downward pressure to oil prices at the end of the week, the supply of crude that sets the global Brent benchmark was expected to grow more swiftly than expected.
Industry sources said at least four shipments were being brought forward due to strong output rates.
"Rising North Sea supply, the resumption of exports in South Sudan and the exit of financial investors," said Carsten Fritsch, an analyst at Commerzbank, listing reasons why oil was weaker on Friday.
"The latter might be attributable to Cyprus to some extent. But all this Cyprus fear is overdone. Look at stock markets, which have shrugged that off."
Concerns over Cyprus have helped push euro zone shares down by more than 1 percent this week and boosted German safe-haven bonds to 2013 highs.
But Fritsch noted the losses in stock markets were small compared to the gains made in previous weeks.
Declining morale in the euro zone, rising North Sea crude
supply and a shrinking oil glut at Cushing, Oklahoma, have
helped pull Brent's premium to U.S. crude futures
"Brent is obviously under greater pressure because it's closer to the epicentre of the issue," said Jonathan Barratt, chief executive of Sydney-based commodity research firm Barratt's Bulletin.
In another indication optimism about the euro zone is weakening, German business morale fell in March, breaking a four-month run of gains on Friday.
Europe's oil demand would be conditional on the outcome of the Cyprus issue, Barratt added.
"It only makes sense that the spread come in," Barratt said.
In the United States, crude stocks at Cushing fell 286,000 barrels last week while economic indicators such as jobless claims and housing data continued to suggest the economic recovery was on track.
Geopolitical tensions meanwhile have continued to support oil, as the standoff between the West and Iran has kept alive fears a dispute over the latter's nuclear programme could escalate and disrupt oil supplies.
Iranian Supreme Leader Ayatollah Ali Khamenei warned on Thursday the Islamic Republic would destroy the Israeli cities of Tel Aviv and Haifa if its nuclear infrastructure came under attack from the Jewish state. (Additional reporting by Florence Tan in Singapore; editing by James Jukwey)