Oil climbs toward $61 on Middle East supply concerns

LONDON (Reuters) - Brent crude oil rose toward $61 a barrel on Friday as fighting in Libya and Iraq stoked output worries, while traders kept a close eye on Iran nuclear talks that could eventually bring more supply to world markets.

Fighting has escalated in northeast Iraq, where Islamic State militants have set fire to oilfields to deter Shi'ite militiamen and Iraqi soldiers from advancing. In Libya, worsening security has led to the closure of 11 oilfields.

Gains were pared slightly by a rise in the dollar, which jumped after U.S. jobs data boosted expectations of a sooner-than-expected rate increase in the world's largest economy.

U.S. employment accelerated in February and the jobless rate fell to 5.5 percent, signs that could encourage the Federal Reserve to raise interest rates in June.

Brent was up 20 cents a barrel at $60.68 by 9 a.m. ET. U.S. light crude was down 20 cents at $50.56.

"Supply disruptions have certainly come back into focus for now," Virendra Chauhan, oil analyst at consultancy Energy Aspects, told Reuters Global Oil Forum. "Libya is noteworthy because militant attacks on infrastructure are increasing."

Tamas Varga, analyst at London brokerage PVM Oil Associates, agreed: "The Libyan and Iraqi oilfield skirmishes are worrying ... There are serious supply issues there."

Investors watched for more details of nuclear talks between Iran and major world powers.

Western diplomats say there are some signs of progress in discussions with Tehran over its nascent nuclear industry. Any sign of a deal between Iran and world powers could result in a flood of Iranian crude returning to the market.

Iran's foreign minister has suggested a 10-year moratorium on some aspects of the nuclear program might be acceptable, although he declined to discuss the issue in detail.

Iran's semi-official Mehr news agency on Friday quoted National Iranian Oil Co's head of international affairs, Mohsen Ghamsari, as saying Tehran would increase crude exports if sanctions were lifted.

Oil services company Baker Hughes was due to release on Friday a weekly survey of the number of U.S. rigs drilling for crude, an indicator used by some investors to gauge whether shale producers are cutting output after prices slumped.

"Given the higher production cost for shale oil, we view that the supply-demand matrix will adjust itself accordingly to eventually lift oil prices," analysts at OCBC said in a note.

(Additional reporting by Florence Tan in Singapore; Editing by David Holmes and Dale Hudson)