Oil trades near $61 on Libya clashes

LONDON (Reuters) - Oil rose more than $1 in volatile trade on Tuesday as fighting in Libya and signs of stronger global demand outweighed persistent concerns about a supply glut.

Brent crude futures rose more than $2 at one point before slipping back to trade just below $61, recovering from their biggest one-day decline in a month on Monday.

Rival Libyan forces carried out tit-for-tat air strikes on oil terminals and an airport, reviving fears over supplies from the OPEC member and helping Brent recover above the $60 level that has anchored prices since mid-February.

Oilfields and ports are increasingly a target in Libya's conflict, which pits two rival governments and their armed forces against each other. Forces claiming allegiance to Islamic State have also targeted oilfields and pipelines.

Brent for April delivery traded $1.30 higher at $60.84 a barrel by 8.56 a.m. ET. It had traded as high as $61.78 earlier in the day.

U.S. crude futures , also known as West Texas Intermediate or WTI, were up 34 cents at $49.93 a barrel. The U.S. benchmark's discount to Brent narrowed sharply on Monday, reversing after touching $13.03, the widest since January 2014.

It traded at $10.91 on Tuesday.

Analysts said the market remained well supplied and the gains defied the underlying fundamentals, but signs of economic strength in Europe and Asia lent support.

European shares rose close to seven-year highs on better than expected German retail sales data, while a resurgent yen knocked the U.S. dollar index off an 11-year high, making commodities priced in the greenback slightly cheaper for holders of other currencies.

Stronger economies should increase demand for oil, which has already been boosted by the sharp drop in prices from above $115 a barrel in June.

"The low prices have helped demand, and that has supported the crude oil market," said Olivier Jakob of PetroMatrix.

Data showed China's January crude oil throughput climbed 0.6 percent on last year to 9.27 million barrels per day.

Traders are also watching to see whether the low prices will dent output in Russia, the North Sea and the fast-growing U.S. shale fields, where there was a 12th straight weekly decline last week in the number of rigs drilling for oil.

Despite the slowing rig count, U.S. production and output in the Middle East remain high.

"Oversupply is still an issue, and this caps the upside potential of oil prices in this supply-driven market," ABN AMRO senior energy economist Hans van Cleef said in a note.

(Additional reporting by Henning Gloystein in Singapore; Editing by David Evans and David Clarke)