* Dollar rises to near 14-year high after U.S. rate rise
* Restart of Libyan pipeline could boost crude supplies
* Tighter market seen in 2017 as other producers cut output (Adds latest prices, fresh quotes, U.S. focus, Libya pipeline)
By Scott DiSavino
NEW YORK, Dec 15 (Reuters) - Oil prices fell on Thursday as the dollar rallied in the wake of a rise in U.S. interest rates, despite forecasts of a tighter oil market in 2017 due to planned output cuts.
The dollar neared a 14-year high against a basket of other currencies after the U.S. Federal Reserve raised rates for the first time in a year and hinted rates could rise more quickly than investors had anticipated in 2017.
A stronger dollar, in which oil is traded, tends to hit demand for crude as it makes fuel purchases more expensive for users of other currencies.
Brent futures for February delivery fell 31 cents, or 0.6 percent, to $53.59 a barrel by 10:55 a.m. EST (1555 GMT). U.S. crude, meanwhile was down 63 cents, or 1.2 percent, to $50.41 per barrel.
That put both Brent and U.S. futures at their lowest levels in a week.
"A good portion of what is happening today is due to the strong dollar rather than any oil fundamentals," said Phil Davis, managing partner at venture capital fund PSW Investments in Woodland Park, New Jersey.
"It does not change the underlying fundamentals that there is too much oil out there," Davis said, noting that the dollar was up about 2 percent so far this week while U.S. oil was down about 2 percent.
In Libya, the restart of a pipeline leading to two key oil fields could add as much as 350,000 barrels per day (bpd) of crude, challenging OPEC's efforts to reduce world supplies and boost oil prices.
"A potential increase in Libyan production ... could offer a major offset to OPEC's planned curtailments," Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.
The Organization of the Petroleum Exporting Countries and other producers led by Russia have promised to cut output by almost 1.8 million bpd to try to clear global oversupply that has depressed prices for more than two years.
ANZ bank said on Thursday that oil markets would move into a substantial deficit in the first quarter of 2017 if OPEC and other producers reduced output as promised.
"This will likely push oil prices well above $60 per barrel early next year," ANZ analysts said in a note to clients.
That would be quite a jump from the current trading range of around $52 per barrel for U.S. oil futures for February and March.
Addition reporting by Christopher Johnson in London, Henning Gloystein and Keith Wallis in Singapore; Editing by David Clarke and Will Dunham