Brent gains on lower Libyan supply, premium to U.S. crude widens $2


* Libyan crude oil exports fall sharply

* U.S. industrial output posts largest gain in 7 months

* Market focused on talks between Iran and world powers

* Coming up: API data at 4:30 p.m EDT on Tuesday

By Jeanine Prezioso

NEW YORK, Oct 28 (Reuters) - Brent oil futures jumped 2.5percent on Monday, the biggest gain in more than two weeks, as adrop in Libyan oil exports revived supply concerns.

Oil production of OPEC-member Libya fell after new protestsover the weekend at its oil fields and ports, boosting theEuropean benchmark's premium over U.S. oil prices by nearly $2 abarrel.

Brent traded higher in heavy volume for much of the sessionbut added close to another $1 of gains in the last half hour oftrading as traders, who had bet on falling prices during theday, bought contracts to cover positions ahead of the marketclose.

Brent for December delivery ended up $2.68 a barrelhigher at $109.61, snapping three days of losses. The contractsettled at the 15-day moving average after breaching the 100-and 200-day moving averages of $108.72 and $108.39.

Brent trading volumes outpaced U.S. volumes by 55 percent,according to Reuters data as the North Sea crude's premium toU.S. West Texas Intermediate swelled to settle at$10.93 a barrel.

U.S. crude settled 83 cents higher at $98.68 perbarrel, at the 200-day moving average.

Prices rose feverishly in the last half hour of trade.Traders short Brent were selling off positions in case Libya cutmore oil production, prompting the late gains, said RichIlczyszyn, chief market strategist and founder of iitrader.comLLC in Chicago.

"We're getting to a key level here," he said. "If Brentcloses above $110, that will be trouble. We could go another$5."


The market focused on reports that Libya's crude oil exportsfell to 90,000 barrels per day, compared with a capacity of morethan 1.25 million bpd.

The benchmark briefly pared some gains in afternoon tradeafter news that oil exports from one Libyan port would resumewithin a week, before pushing higher near thesettle.

Tripoli has been struggling to reach a deal with protestersin the east to re-open its ports and oil facilities, which haveblocked exports from its largest terminals for the last threemonths in the worst disruption since the civil war in 2011.

Oil prices were also lifted by an improved demand outlookand the expectation for better refining margins after datashowed U.S. industrial production recorded its largest increasein seven months in September.

"The fact that industrial output has picked up means demandis actually strong for products and refining margins should pickup. It means enduser demand is holding up," said Amrita Sen,chief analyst at consultants Energy Aspects in London.

Investors will also keep an eye on a two-day meeting ofexperts from Iran and six world powers on Wednesday. Sanctionsagainst Iran have kept some 1 million barrels of oil off themarket, underpinning oil prices.

U.S. oil prices would need to get back above $99.80, or the23.6 retracement level on a Fibonacci chart, from the recenthigh of $112.24 to last Thursday's four-month low of $95.95before the market would be able to strengthen further to theupside, said Brian LaRose, a technical analyst with United-ICAPin Jersey City.

"I think you get above that $99.80 level and you have roomto run," he said. "If you don't get back above that, you'll havea period of consolidation before we trade sideways and headlower again."

The market was also waiting on oil inventory data this week.Industry group American Petroleum Institute will report data at4:30 p.m. EDT (2030 GMT) on Tuesday. U.S. oil inventories likelyrose 3.2 million barrels last week while distillates andgasoline fell 1 million barrels each, a Reuters poll showed.

The U.S. Energy Information Administration is expected toreport its weekly oil inventory data at 10:30 a.m. EDT (1430GMT) on Wednesday.

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