Oil rose above $111 a barrel on Monday, rebounding from the previous session's drop, as concern about supply resurfaced amid growing optimism over signs that the world's biggest economies are on their way to a steady recovery.
A cut in Saudi Arabian production last month, pipeline sabotage in Yemen and a weather-related drop in Iraqi shipments have reduced output, while fighting in Syria and Iranian naval exercises in the Strait of Hormuz reminded investors of the risk of wider disruption to Middle East supply.
Brent crude gained 70 cents to $111.34 a barrel by 1337 GMT, after settling 1.1 percent lower on Friday. U.S. oil rose 37 cents to $93.93.
"Today is a partial recovery from Friday's sharp losses, which were hard to justify," said Carsten Fritsch, analyst at Commerzbank. "The demand side is improving while supply has been cut. The general theme is that over-supply is going to shrink."
Saudi Arabia cut production in December to around 9 million barrels per day (bpd). On Monday, a Saudi oil ministry adviser said the reduction was in response to lower seasonal demand, rather than to push up prices.
"In just the first fortnight of 2013, supply has already materially disappointed," analysts at Morgan Stanley, including Hussein Allidina, said in a report.
Bad weather led to a cut in shipments from Iraq's southern ports to 960,000 bpd on Sunday. They recovered to 1.46 million bpd on Monday, a shipping source said, still well below the normal rate.
The spread between U.S. crude and Brent continued to shrink, trading at the narrowest since September.
U.S. crude is gaining on Brent following the start-up of the expanded Seaway pipeline, which aims to ease the glut of crude in the U.S. Midwest and especially at the Cushing, Oklahoma, delivery point for the U.S. contract.
On the technical price charts, a crucial indicator on Monday will be whether Brent settles above $111 - psychological resistance and close to the 100-day moving average now at $111.02. On Friday, Brent settled below the average.
The supply outages arise as evidence grows of a gradual revival in the world's top economies, bolstering oil demand, which forecasters including the International Energy Agency currently expect to be sluggish in 2013.
The growth outlook for most industrialised countries is improving, led by the United States and Britain, while the Chinese and Indian economies have reached positive turning points, the OECD said on Monday.
The U.S. economy is expected to grow by 2.5 percent in 2013, improving to 3.5 percent growth in 2014, Fed official Charles Evans said on Monday. Surveys this week of U.S. consumer confidence and of house builder sentiment are expected to improve.
China's annual economic growth is expected to have quickened to 7.8 percent in the fourth quarter, a Reuters poll showed, after seven quarters of weaker expansion. The figures will be released on Friday. (Reporting by Manash Goswami and Alex Lawler; Editing by Anthony Barker)