* Bad weather cuts Iraq south oil exports
* U.S. housing, confidence data set to improve
* Brent-U.S. crude spread at narrowest since September (Previous SINGAPORE, updates prices)
By Alex Lawler
LONDON, Jan 14 (Reuters) - Oil rose above $111 a barrel on Monday 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.
"If there is any supply side concern in the Middle East, it will reflect in the risk premium and support prices," said Ben Le Brun, market analyst at Sydney-based OptionsXpress. "Those concerns are offsetting the losses we saw in oil on Friday."
Brent crude gained 60 cents to $111.24 a barrel by 0935 GMT, after settling 1.1 percent lower on Friday. U.S. oil rose 49 cents to $94.05.
"In just the first fortnight of 2013, supply has already materially disappointed," said analysts at Morgan Stanley including Hussein Allidina, in a report.
In a temporary setback for supplies, bad weather cut oil exports from Iraq's southern port of Basra to 960,000 barrels per day (bpd) on Sunday, down from 2.35 million bpd a day earlier, a shipping source said.
The spread between U.S. crude and Brent CL-LCO1=R is continuing to narrow, trading on Monday 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.
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 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 Alison Birrane)