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UPDATE 9-Oil prices hit seven-month lows on global oversupply

* OPEC supply jumps in May as Libya, Nigeria output recovers

* OPEC, non-OPEC compliance with cuts hits highest in May- source

* Hedge funds sour on crude oil and fuels

* U.S. crude stockpiles forecast lower for second week

* Coming Up: Weekly API data on U.S. inventories at 2030 GMT (Updates pricing; adds comment; changes dateline, previous LONDON)

NEW YORK, June 20 (Reuters) - Oil prices fell nearly 3 percent to seven-month lows on Tuesday after increases in supply by several key producers overshadowed high compliance by OPEC and non-OPEC oil producers with a deal to cut global output amid a continued sell-off driven by funds.

Brent was down $1.09 at $45.82 a barrel by 1:00 p.m. (1700 GMT), after hitting $45.42, its lowest intraday since Nov. 15, two weeks before the Organization of the Petroleum Exporting Countries and other producers agreed to cut output by 1.8 million barrels per day (bpd) for six months from January.

The U.S. crude futures contract for July, due to expire later on Tuesday, fell $1.20 to $43.00, having earlier touched $42.75, its lowest since Nov. 14.

Both benchmarks were down more than 15 percent since late May, when OPEC, Russia and other producers extended limits on output until the end of March 2018.

"Given the expectation that you'll see higher production levels in several areas of the world, it's going to offset all they're taking off the market," said Gene McGillian, manager of market research at Tradition Energy.

OPEC and non-OPEC oil producers' compliance with the deal to cut output reached its highest in May since they agreed on the curbs last year, reaching 106 percent last month, a source familiar with the matter said.

OPEC supplies, however, jumped in May as output recovered in Libya and Nigeria, both exempt from the production reduction agreement.

Libya's oil production rose more than 50,000 bpd to 885,000 bpd after the state oil company settled a dispute with Germany's Wintershall, a Libyan source told Reuters.

Nigerian oil supply is also rising. Exports of Nigeria's Bonny Light crude are set to reach 226,000 bpd in August, up from 164,000 bpd in July, loading programs show.

"The increasing August export program in Nigeria and the jump in Libyan oil output should pressure oil prices further in the short term," said Tamas Varga, senior analyst at London brokerage PVM Oil Associates.

"If we get bearish U.S. oil statistics this week, we could see a test of $45 on Brent," Varga said.

Ahead of weekly U.S. inventory reports, U.S. crude oil stocks were forecast to have fallen for the second straight week, while gasoline supplies were seen unchanged after last week's data showed an unexpected build that weighed down the market.

Industry group American Petroleum Institute (API) is scheduled to release its data for last week at 4:30 p.m., and official government report is due at 10:30 a.m. EDT on Wednesday.

"Recent data points are not encouraging," Morgan Stanley analysts said in a note to clients. "Identifiable oil inventories - both crude and product in the OECD, China and selected other non-OECD countries - increased at a rate of (about) 1 (million bpd) in Q1."

Hedge fund managers have become very bearish about the outlook for oil prices as production from countries outside OPEC grows and threatens to undermine the effectiveness of OPECs output controls.

The $1.3 billion Andurand Commodities fund was down 17.33 percent for the year by May 31, according to an HSBC report. Merchant Commodity Fund was down 12.38 percent by June 9, the report said.

"At the moment sentiment is bearish and traders seem happy to keep selling into every rally," said Fawad Razaqzada, financial markets technical analyst at Forex.com.

(Additional reporting by Aaron Sheldrick in Tokyo and Christopher Johnson in London; Editing by Marguerita Choy and Jason Neely)