By Alex Lawler

LONDON, Feb 5 (Reuters) - Oil rose towards $117 a barrel on Tuesday, resuming its three-week rally, as investor concern faded about political risks in the euro zone that had prompted a sell-off of riskier assets in the previous session.

European shares moved up, with oil major BP among those gaining, and the euro rose after better-than-expected euro zone PMI figures. U.S. stocks advanced in early trade, also rebounding from the previous day's loss.

Brent crude was up $1.24 a barrel at $116.83 at 1518 GMT after falling as low as $115.01 earlier. It has gained over 5 percent in 2013 and reached a more than four-month high above $117 on Friday. U.S. crude added 70 cents to $96.87.

'We do not envisage prices receding for any great length of time,' said Carsten Fritsch, analyst at Commerzbank. 'The supply-side risks still prevailing, shrinking OPEC supplies and the brightening global economic outlook all suggest that such a retreat is unlikely.'

Lower output from the Organization of the Petroleum Exporting Countries has reduced an expected global supply surplus in 2013, while fighting in Syria and Iran's dispute with the West over its nuclear work continue to pose the risk of wider disruption to Middle East supply.

Brent's premium to U.S. crude increased to $20.02, the widest this year. Expectations that stocks at the Cushing, Oklahoma, delivery point for the U.S. contract may keep rising are weighing on the U.S. benchmark, traders have said.

And supporting prices on the Brent side, supply of the North Sea crudes which underpin the Brent futures contract is expected to fall in March, according to loading schedules.

IRAN

Oil fell on Monday alongside the euro and equities as a rise in political uncertainty in the euro zone weighed on sentiment. Analysts said Iran's offer of fresh talks with the West also dampened oil prices.

Iran and world powers on Tuesday announced new talks were scheduled for Feb. 26, but hopes of progress were tempered when an Iranian official said the West's goal in talking was to undermine the Islamic republic.

In Spain, the prime minister is facing calls to resign, while in Italy, which is having elections this month, former prime minister Silvio Berlusconi is seeing a resurgence in popularity.

Some dealers say crude may struggle to rally much further, seeing little in the supply and demand balance to justify higher prices.

'The market has perked up a bit, but I suspect the quite sustained rally we saw last week is running out of steam now and fundamentals will be reasserting themselves,' said Christopher Bellew, a broker at Jefferies Bache.

'There seems to be plenty of crude around. The market is fairly well balanced, so it should not be in an upward spiral because of any lack of supply.'

Oil traders awaited a report on U.S. oil supplies later the day. U.S. crude stocks are expected to rise by 2.8 million barrels, a preliminary Reuters poll found on Monday.

Industry group the American Petroleum Institute releases its report on Tuesday, while figures from the government's Energy Information Administration follow on Wednesday.

(Additional reporting by Ramya Venugopal in Singapore; editing by James Jukwey) Keywords: MARKETS OIL/

(alex.lawler@thomsonreuters.com)(+44 207 542 4087)(Reuters Messaging: alex.lawler.reuters.com@reuters.net)

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