*

Mideast conflict not affecting oil supplies so far

*

Analysts: High OPEC spare capacity counters supply risks

*

Plentiful supply, economic concerns limit conflict impact

(Adds analyst comment, updates prices in paragraphs 2-3, 5-6)

By Erwin Seba

HOUSTON, April 22 (Reuters) - U.S. crude futures returned to positive territory on Monday after falling on easing fears of a wider conflict in the Middle East.

U.S. West Texas Intermediate crude was up 1 cent, or 0.01%, at $83.15 a barrel at 11:51 a.m. CDT (1651 GMT). The front-month WTI crude contract for May expires on Monday.

Brent crude futures were down 33 cents, or 0.38%, at $86.96 a barrel.

Both benchmarks had been down more than $1 a barrel earlier on Monday.

The recovery following on the heels of fading geopolitical risk was replaced by a re-evaluation of market fundamentals, said Phil Flynn of Price Futures Group.

"The fundamentals on oil are strong," Flynn said. "The expectation is the markets are going to tighten this summer on the supply side."

Geopolitical risk premiums tend not to last if supply is not actually disrupted, said UBS strategist Giovanni Staunovo, adding that the high spare capacity of a few oil-producing countries could compensate for any supply disruptions.

The market reaction to the rising geopolitical temperature was another example that it is only reasonable to expect a protracted oil rally if the Strait of Hormuz- the world's most important oil artery - was disrupted or Saudi Arabia directly drawn into the conflict, noted Tamas Varga of oil broker PVM.

Meanwhile, plentiful supplies of some of the biggest crude grades are limiting the impact on oil futures of conflict in the Middle East, a Reuters analysis found.

On the economic front, inflation is back in focus, with comments from Federal Reserve officials and a run of hotter-than-expected inflation data forcing a paring back last week of expectations of interest rate cuts.

Economic concerns have again become a bearish factor in the crude market, with prices under pressure due to a large build in the U.S. stockpile and a hawkish Fed that has led to a strong dollar, said Tina Teng, an independent market analyst.

A strong dollar makes oil more expensive for holders of other currencies. (Reporting by Erwin Seba; erwin.seba@thomsonreuters.com; Additional Reporeting Deep Vakil in Bengaluru, Natalie Grover in London, Colleen Howe in Beijing and Jeslyn Lerh in Singapore; Editing by Louise Heavens, Alex Lawler, Bernadette Baum, Alexander Smith and Paul Simao)