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UPDATE 4-Oil above $111 on supply concerns, U.S. stocks weigh

Joshua Franklin
Wednesday, 27 Nov 2013 | 7:27 AM ET

* Oil workers strike over insecurity in Libya's Benghazi

* U.S. crude stocks up, distillate inventories fall -API

* Coming up: U.S. EIA oil stocks data at 1530 GMT

(Updates prices, adds news on India)

LONDON, Nov 27 (Reuters) - Brent oil rose above $111 a barrel on Wednesday as unrest in Libya stoked supply fears ahead of northern hemisphere winter demand, but a higher-than-expected build in U.S. crude stocks capped gains.

Brent crude gained 45 cents to $111.33 a barrel by 1200 GMT, after settling 12 cents lower on Tuesday. Brent hit a six-week high on Monday at $111.66 on winter supply concerns, after first dropping $3 on the Iran nuclear agreement.

U.S. oil fell 43 cents to $93.25 a barrel, extending losses after ending 41 cents down.

Libyan oil workers, civil servants and private-sector staff went on strike in the port city of Benghazi as new clashes between the army and Islamists erupted.

The military is struggling to curb Islamist militants and militias who fought in the 2011 uprising against Muammar Gaddafi. The violence has reduced oil flow from the OPEC member to a fraction of its capacity.

"On the supply side we have a supportive element, which still is Libya," said Gareth Lewis-Davies, senior energy strategist at BNP Paribas. "There is a drip-feed of information which leads one to expect that there won't be any immediate increase in production in Libya."

Oil has stabilised after wide swings on Monday following a deal between world powers and Iran over its nuclear programme.

While the agreement took away some of the lingering concerns of an escalation in tension in the Middle East, immediate supply issues came back in focus.

"In essence, the initial euphoria that suggested there would be additional oil supply coming from Iran has now abated," BNP's Lewis-Davies said.

Iranian oil minister Bijan Zanganeh told the Financial Times newspaper Iran does not expect to raise its oil exports immediately after Sunday's nuclear deal, but is in talks with potential Western investors in its energy industry.

"This is a first step for lifting the sanctions," Zanganeh was quoted as saying. "We can't sign contracts but the agreement will open doors."

India's top oil bureaucrat said the country could buy more crude from Iran in the next four months and intended to increase purchases further in the next fiscal year.

India, one of Tehran's four main buyers of oil, has room to increase its imports after they tumbled around 40 percent this year to below even what was permitted by sanctions.

Oil, particularly U.S. light crude, came under pressure as U.S. crude stocks rose sharply last week, by 6.9 million barrels, data from the American Petroleum Institute industry group showed. Analysts had expected an increase of 600,000 barrels.

This helped push the spread between Brent and U.S. crude oil to an eight-month high of $18.22 a barrel on Wednesday.

Investors awaited oil stocks data from the U.S. Energy Information Administration (EIA) at 1530 GMT to gauge the demand outlook in the world's biggest oil consumer.

(Additional reporting by Manash Goswami in Singapore; Editing by Christopher Johnson and Dale Hudson)