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UPDATE 4-Oil falls to $111 on high U.S. output, inventories

Joshua Franklin
Thursday, 28 Nov 2013 | 7:41 AM ET

* Libya struggles to pay salaries, more clashes erupt

* US crude stocks up, highest for Nov since records began

* Brent-WTI spread near highest since March

(Updates prices, Libya story link, adds quotes, more on Iran)

LONDON, Nov 28 (Reuters) - Brent oil fell to $111 per barrel on Thursday, weighed by a bigger-than-expected rise in U.S. crude stockpiles, but Libyan supply disruption kept prices supported.

Brent crude fell 31 cents to $111 a barrel by 1220 GMT. It is still up 2 percent in November, and over $8 above its low for the month.

U.S. oil fell 17 cents to $92.13, hovering near the lowest in almost six months. It touched a low of $91.77 on Wednesday, its weakest since June 3.

U.S. crude oil stocks rose by almost 3 million barrels to 391 million barrels, their highest level for November since records began in 1982, the Energy Information Administration said in weekly data on Wednesday.

"In the absence of strongly positive factors, you're going to get a bit of a drag-down effect 1/8on Brent oil 3/8, simply because U.S. prices are falling and you would expect Brent prices would lag them," said Michael Hewson, market analyst at CMC Markets.

The EIA also said U.S. crude oil output last week exceeded 8 million bpd for the first time since January 1989. Earlier this month, its data showed that crude production exceeded imports for the first time in nearly two decades.

Libyan Prime Minister Ali Zeidan said on Wednesday his government would be unable to pay public salaries and may have to seek loans if armed militias blockading oilfields and ports continue to choke off crude shipments.

Trade is set to be light due to the Thanksgiving holiday in the United States.

"Libya concerns are market supportive still, but nervous jittery trading is here to stay. With the U.S. off today volumes will be low," said Andrey Kryuchenkov, strategist at VTB Capital.

Refiners in Europe and the United States are coming back from maintenance and increasing output which has seen demand for crude recovering.

International Energy Agency (IEA) head Maria van der Hoeven said oil markets were adequately supplied even with the prospect of dwindling crude output from Libya.

In addition, Iranian supplies may increase if Tehran follows through on its commitments reached in a breakthrough deal with world powers over its nuclear programme at the weekend.

In the first concrete step under the cooperation agreement to clarify concerns about its disputed nuclear programme, Iran invited U.N. inspectors to visit its Arak heavy-water production plant on Dec. 8. 1/2ID:nL5N0JD1WR 3/8

Brent oil's premium to U.S. crude <CL-LCO1=R> reached $19.32 per barrel, just off its highest level since March.

"This opens a window of competitive advantage to U.S. industry which can only accelerate economic recovery there," Christopher Bellew, broker at Jefferies Bache said.

(Additional reporting by Manash Goswami; in Singapore and Simon Falush in London; editing by William Hardy and James Jukwey)