By Joshua Franklin
LONDON (Reuters) - Brent oil rose above $111 a barrel on Wednesday as unrest in Libya stoked concerns about supply, but a higher-than-expected build in U.S. crude stocks capped gains.
Brent crude gained 18 cents to $111.06 a barrel by 1320 GMT, after settling 12 cents lower on Tuesday. Brent hit a six-week high on Monday at $111.66, after first dropping $3 on the Iran nuclear agreement.
U.S. oil was down $1 at $92.68 a barrel, after falling as low as $92.52 after data showed crude stocks had risen.
Libyan oil workers, civil servants and private-sector staff went on strike in the port city of Benghazi as new clashes erupted between the army and Islamists.
The military is struggling to curb Islamist militants and militias who fought in the 2011 uprising against Muammar Gaddafi. The violence has reduced oil flows 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."
Brent was stable by comparison with its 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 tensions 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.
Iran's oil minister, Bijan Zanganeh, told the Financial Times that it did not expect to raise oil exports immediately after Sunday's nuclear deal but was 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 oil buyers, has room to increase its imports after they tumbled around 40 percent this year to below even what was permitted by sanctions.
U.S. light crude came under pressure after stocks rose by 6.9 million barrels last week, 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 benchmark U.S. crude, or West Texas Intermediate (WTI), to an eight-month high of $18.72 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.
