Oil fell below $61 a barrel on Tuesday but climbed from session lows after Saudi Arabia said oil demand was picking up.

U.S. crude oil for July delivery was down $1.28 from Friday's close at $60.39 a barrel by 7:47 a.m. EDT. It earlier touched a session low of $59.53.

London Brent crude was down 66 cents from Monday's close, at $59.55.

There was no settlement price for U.S. crude oil Monday as NYMEX was closed for the U.S. Memorial Day holiday.

Oil has nearly doubled in price since December, buoyed partly by expectations of increased demand if the world economy recovers. U.S. crude has reached its highest in six months.

Saudi Arabian Oil Minister Ali al-Naimi said there was already a slight uptick in fuel consumption.

Naimi, speaking to journalists ahead of Thursday's OPEC meeting in Vienna, also said he hoped oil prices would hit $75 a barrel between the third and fourth quarters of this year.

The al-Hayat newspaper has quoted Naimi as saying world stocks were still too high for OPEC to consider lifting output.

The Organization of the Petroleum Exporting Countries has already pledged to curb output by 4.2 million barrels per day since September. It meets to review supply on May 28.

Saudi Arabia has warned oil prices could spike up to the $150 record peak reached in 2008 within three years as it joined other energy leaders in calling for more investment to boost oil output over the long term.

SPECULATORS

Clearly, more fund money is now banking on higher oil prices down the road, Edward Meir of broker MF Global said in a research note.

But he said the supply/demand outlook for oil was less promising in the near term.

Particularly in the light of the likely OPEC decision to leave quotas unchanged. This leaves unaddressed the continuing build up in oil inventories, which could come back to haunt the cartel.

Data from the U.S. Commodity Futures Trading Commission showed a big increase in net long positions by speculators in crude oil in the week to May 19.

Last week there was quite a big increase in the length held by speculators in U.S. crude, but maybe when U.S. crude fell back below $60 a barrel there was some stop-loss selling, said Christopher Bellew of Bache Commodities Ltd.

A firmer U.S. dollar also weighed on the market. A stronger dollar puts downward pressure on oil prices as it makes oil more expensive for holders of other currencies.

Militant action in Nigeria has become a supportive factor.

Nigerian militants launched a major strike against the oil industry late Sunday, bombing a Chevron pipeline and shutting 100,000 bpd of output.

Not yet enough to dramatically change a supply balance where there is an estimated 100 million barrels of crude oil sitting afloat, but with the military said to be expanding its operations we will maintain a premium for the Nigerian disruption risk, said Olivier Jakob, of energy consultancy Petromatrix, in a research note.

North Korea's latest nuclear tests added to market tensions and caused Asian and European shares to fall.

(Additional reporting by Fayen Wong in Perth; editing by Anthony Barker)

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