Wires

UPDATE 3-Oil slips towards $65 as Middle East war concerns ease

Alex Lawler

* Brent gives up all gains made after Iranian general killed

* U.S. crude inventories unexpectedly rose last week

* OPEC cut output in December ahead of new OPEC+ deal (Updates prices, adds analyst quotes, previous TOKYO)

LONDON, Jan 10 (Reuters) - Oil slipped towards $65 a barrel on Friday as the threat of war in the Middle East receded and investors focused on rising U.S. inventories and other signs of ample supply.

Crude is now below where it was before a U.S. drone strike killed Iranian general Qassem Soleimani on Jan. 3. Iran responded with a missile attack on Iraqi air bases hosting U.S. forces this week that left no casualties.

"Immediate escalation has been avoided," said Olivier Jakob, oil analyst at Petromatrix. "There has been some de-escalation, but the return of risk is still there."

Brent crude, the global benchmark, was down 20 cents at $65.17 by 0928 GMT, and was heading for its first weekly decline in six weeks, down about 5%. U.S. West Texas Intermediate crude was 25 cents lower at $59.31.

"Tensions between the U.S. and Iran appear to have eased almost as quickly as they escalated," said Craig Erlam, an analyst at OANDA, a brokerage.

"Brent is trading back around $65 and is looking pretty stable at this point. Barring any further escalation in the Middle East, we could see oil prices stabilize around these levels in the near term."

With Middle East tensions easing for now, investors are focusing on areas away from the conflict.

Crude inventories in the United States rose last week by 1.2 million barrels, the U.S. Energy Information Administration said on Wednesday.

That compared with analysts' expectations in a Reuters poll for a 3.6 million-barrel drop.

"There's too much supply out there," a Japan-based based oil executive told Reuters.

In a bid to tackle any build-up of excess supply, the Organization of the Petroleum Exporting Countries plus allies including Russia are embarking on a further cut in production as of Jan. 1 this year.

Industry surveys, including from Reuters, showed that OPEC output declined in December ahead of the new pact. Still, production remains higher than the forecast demand for early 2020, according to some analysts.

"The oversupply on the oil market is sizeable," said Carsten Fritsch, analyst at Commerzbank.

(Reporting by Alex Lawler; Additional reporting by Aaron Sheldrick; Editing by Jan Harvey)