Oil recovers to $110 after biggest fall in five weeks

By Joshua Franklin

LONDON (Reuters) - Brent crude oil rose to around $110 a barrel on Tuesday, recouping some of the previous session's sharp losses as the U.S. dollar weakened.

The U.S. currency hit a six-week low against the euro, increasing the purchasing power for European consumers who have to buy oil in dollars on international markets.

Brent for January was up 80 cents at $110.19 a barrel by 1210 GMT, having risen briefly by more than $1 to a high of $110.45. Brent dropped 2 percent on Monday, its biggest loss in five weeks, following mixed economic data from Germany.

U.S. crude oil futures, were up $1.11 at $98.45 a barrel, their highest in six weeks, after their first decline in seven sessions on Monday.

"The poor day yesterday (for Brent) was (due to) the mixed German data, which called into question the European recovery," said Gareth Lewis-Davies, senior energy strategist at BNP Paribas. "I think that was overdone and we've seen about 40 percent of the falls yesterday have been recovered."

Helping underpin Brent was persistently low output in Libya at 250,000 barrels per day (bpd), down from 1.4 million bpd in July.

Blockades of Libya's eastern terminals and intermittent disruptions in the west could cap output at 800,000 bpd in 2014, Adam Longson, a commodities strategist at Morgan Stanley, wrote in a note.

Implied Chinese oil demand in November rose 1.5 percent from October's 9.79 million bpd and was the highest level in five months. However, it was down 5.1 percent from a year earlier, according to Reuters calculations based on preliminary government data.

Brent's premium to U.S. crude narrowed to its lowest in four weeks as TransCanada Corp began filling a 700,000 bpd pipeline that will transport crude from Cushing, Oklahoma, to Gulf Coast refiners. The company did not say when it expects the line to begin commercial service.

The market awaited data on U.S. crude stocks from industry group the American Petroleum Institute to be released at 2130 GMT for an indication of the supply situation in the United States.

U.S. crude oil stocks are forecast to have fallen for a second week last week by 2.7 million barrels, a Reuters poll of analysts showed.

This is after trade sources said on Friday the supply of North Sea crude that underpins the Brent benchmark - known as Brent, Forties, Oseberg and Ekofisk (BFOE) - would rise in January.

"The healthy BFOE loadings programme for January and continued dismal refining margins in Europe leave the outlook for Brent spreads moderately bearish, while draws in Cushing have finally started to rein in the WTI-Brent spread," Seth Kleinman, head of energy research at Citigroup, said in a note.

(Additional reporting by Florence Tan and Manash Goswami in SINGAPORE; Editing by Christopher Johnson)