* Brent, U.S. oil set for weekly gains * Fed taper affirms improved U.S. economic outlook, fuel demand * Coming up: U.S. final Q3 GDP data at 1330 GMT (Updates prices, paragraphs 4 and 5) By Joshua Franklin LONDON, Dec 20 (Reuters) - Brent crude oil rose towards $111 a barrel on Friday, heading for a weekly gain, boosted by a positive outlook for fuel demand in the United States, the world's largest oil consumer, and reduced Libyan supply. Oil gained this week after U.S. crude stockpiles fell, while the U.S. Federal Reserve's decision to start winding down its bond-buying programme supported the view that the world's biggest economy is on the path to recovery. U.S. crude futures headed for a rise of more than 2 percent this week, while Brent crude was set for a weekly gain of around 1.5 percent. Brent's premium to U.S. oil was also on track to narrow for a third straight week. Brent crude was up 53 cents to $110.82 a barrel by 1245 GMT, while U.S. oil was at $98.89 a barrel, down 15 cents. "The fact is that the underlying economies are getting better and that will override any tapering that the Fed does," said Amrita Sen, chief analyst at consultants Energy Aspects. In Libya, crude exports have dropped to 110,000 barrels per day (bpd), from over 1 million bpd in July. The OPEC producer is stepping up fuel imports as a mix of militias, tribesmen and civil servants demanding political rights or a greater share of Libya's oil wealth have occupied several oilfields and ports. "Libya probably will increase production in 2014, but stable production at 1.5 million bpd is not my expectation," said Bjarne Schieldrop, chief commodity analyst at SEB Bank. U.S. DEMAND Prices were also supported by data from the American Petroleum Institute on Thursday which showed demand for petroleum products in the United States rose to the highest November level in six years. A larger than expected drawdown in crude stockpiles last week also underpinned prices. Pressure on prices came from U.S. data on Thursday that showed new filings for unemployment benefits unexpectedly rose. Data also showed U.S. home resales hit a near one-year low in November, though housing market fundamentals remained solid. The market will look to the final reading of third quarter U.S. GDP growth, due to be released at 1330 GMT, for a further indication of the strength of the U.S. economy. A Reuters poll predicated the 3.6 percent annual growth figure to be unchanged. Violence in South Sudan threatens to disrupt oil production in the two-year old nation, though officials there have said until now that output has not been affected. "If the situation does not improve, the conflict could lead to disruptions in oil output, which currently stands at around 200,000 bpd," analysts at Vienna-based consultancy JBC Energy wrote in a note. China National Petroleum Company, a leading oil investor in producer South Sudan, said on Friday it was evacuating oil workers to the capital, Juba. (Additional reporting by Manash Goswami and Florence Tan in Singapore, editing by William Hardy and David Evans)

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