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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 2.5 percent on Monday, the biggest gain in more than two weeks, as a drop in Libyan oil exports revived supply concerns.

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

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

Brent for December delivery ended up $2.68 a barrel higher at $109.61, snapping three days of losses. The contract settled 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 to U.S. West Texas Intermediate swelled to settle at $10.93 a barrel.

U.S. crude settled 83 cents higher at $98.68 per barrel, 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 cut more oil production, prompting the late gains, said Rich Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.

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


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

The benchmark briefly pared some gains in afternoon trade after news that oil exports from one Libyan port would resume within a week, before pushing higher near the settle.

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

Oil prices were also lifted by an improved demand outlook and the expectation for better refining margins after data showed U.S. industrial production recorded its largest increase in seven months in September.

"The fact that industrial output has picked up means demand is actually strong for products and refining margins should pick up. 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 of experts from Iran and six world powers on Wednesday. Sanctions against Iran have kept some 1 million barrels of oil off the market, underpinning oil prices.

U.S. oil prices would need to get back above $99.80, or the 23.6 retracement level on a Fibonacci chart, from the recent high of $112.24 to last Thursday's four-month low of $95.95 before the market would be able to strengthen further to the upside, said Brian LaRose, a technical analyst with United-ICAP in Jersey City.

"I think you get above that $99.80 level and you have room to run," he said. "If you don't get back above that, you'll have a period of consolidation before we trade sideways and head lower again."

The market was also waiting on oil inventory data this week. Industry group American Petroleum Institute will report data at 4:30 p.m. EDT (2030 GMT) on Tuesday. U.S. oil inventories likely rose 3.2 million barrels last week while distillates and gasoline fell 1 million barrels each, a Reuters poll showed.

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