Oil prices rise with Libya disruption but upside capped

By Sabina Zawadzki

LONDON (Reuters) - Oil prices rose on Tuesday thanks to a weakened dollar, supply disruption in Libya and the latest comments from officials suggesting OPEC could extend its deal cutting global production.

But crude was weighed down by a resurgence in U.S. shale oil production and the expectation that inventories in the country would once again build, illustrating the persistent global supply overhang that has depressed prices for three years.

Prices for front-month Brent crude futures, the international benchmark for oil, gained 36 cents to $51.11 per barrel by 1105 GMT. West Texas Intermediate (WTI)futures, the U.S. benchmark, were up 38 cents at $48.11 a barrel.

Brent rebounded from testing a support of $50 a barrel on Monday and was underpinned by a weak dollar, which can attract investors to safer commodity markets while making oil cheaper for countries using other currencies.

The dollar was slightly stronger against a basket of other leading currencies on Tuesday but is still trading at levels not seen since last November.

Both Brent and WTI jumped over 20 cents a barrel after it emerged Libya's oil output had fallen by roughly a third, or 252,000 barrels per day (bpd) because armed factions blocked production at the Sharara and Wafa oil fields.

The contracts also rose after Iranian Oil Minister Bijan Zanganeh said the global oil cut agreement between the Organization of Petroleum Exporting Countries and other major producers was likely to be extended.

Nevertheless, Saxo Bank Head of Commodity Strategy Ole Hansen said "supply remains in focus ahead of the (U.S. Energy Information Administration) EIA report where an increase of more than 322,000 barrels will see Cushing hit a record".

Rising stocks at Cushing tend to depress the U.S. benchmark price, widening its discount to Brent , which in turn makes U.S. crude oil attractive to importers. That undermines any OPEC efforts to cut supplies.

Analysts polled by Reuters expect that nationwide crude oil stocks rose by 1.2 million barrels to a fresh record.

EIA data is due on Wednesday at 1430 GMT while estimates from the American Petroleum Institute are issued on Tuesday at 2030 GMT.

A record amount of U.S. crude oil has found its way to Asia and other destinations this year and more is expected to be shipped out as traders take advantage of arbitrage opportunities by sending excess U.S. crude into regions where it can find buyers.

(Additional reporting by Henning Gloystein in Singapore; Editing by Keith Weir and Susan Thomas)