Oil falls as Ukraine, Greece heighten concerns over demand

NEW YORK (Reuters) - Crude oil futures fell on Tuesday as concerns about weak demand as a result of uncertainty in Europe outweighed worries about threats to Middle East production and the effect of U.S. output cuts.

Pro-Russian rebels and government forces fought street-to-street in east Ukraine, dampening hopes that a European-brokered peace deal will end the conflict.

"Growing concerns about whether a ceasefire will hold and Greece's problems have got people worried about demand for oil in a shaky European economy," said Phil Flynn, analyst at Price Futures Group in Chicago.

Front-month April Brent crude was down 47 cents at $60.93 a barrel at 11:34 a.m. EST (1634 GMT), off the intraday peak of $62.34. Brent reached a 2015 high of $62.57 on Monday.

U.S. March crude was down $1.30 at $51.48 a barrel, having fallen as low as $50.81. March crude oil options expiration was slated for Tuesday ahead of Friday's March contract expiration.

"I think it all started in silver with squeezing out of long positions, then spilled over to gold and then to oil," said Carsten Fritsch, commodities analyst at Commerzbank. Copper and other base metals fell on concerns about demand in China and the breakdown of debt talks between Greece and its European partners on Monday night.

Gold and silver fell to six-week lows.

Meanwhile, oil output growth has started to slow in some regions, and may be stunted in others. Libya's oil exports have collapsed to just a trickle as violence in the country has shut all major ports and the internal conflicts highlight the threat from groups linked to Islamic State.

International Energy Agency Chief Economist Fatih Birol on Tuesday warned the rise of Islamic State presented a major challenge for the investment necessary to prevent an oil shortage in the next decade.

Iraq's semi-autonomous Kurdistan Regional Government threatened to withhold oil exports if Baghdad failed to send its share of the budget.

Oil prices collapsed in the second half of 2014 on oversupply. The Organization of the Petroleum Exporting Countries did not cut output, choosing to defend market share against U.S. shale oil and other competing sources.

Supported by a sharp fall in U.S. oil drilling, Brent crude has staged a recovery after falling to $45.19 on Jan. 13, the lowest in almost six years and down from $115 in June.

(Additional reporting by Alex Lawler in New York and Henning Gloystein in Singapore; Editing by Dale Hudson, Jessica Resnick-Ault and Chris Reese)

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