NEW YORK (Reuters) - Oil prices rose on Wednesday, reversing two days of losses, after U.S. government data showed domestic fuel stocks fell much more than expected last week, which overshadowed an increase in crude inventories.
U.S. crude oil stocks rose by 2.8 million barrels, their third straight weekly gain, dwarfing analysts' forecasts for an increase of 2.1 million barrels.
The stock build occurred even though crude imports were down 1.25 million barrels per day, the biggest weekly decline since January. However, the inventory rise came in well below industry data that showed a 6.6-million-barrel increase. <EIA/S> <API/S>
Refinery utilization unexpectedly fell nearly 2 percentage points to 83.8 percent of capacity, the data from the Energy Information Administration showed -- another factor that helped keep crude inventories higher.
U.S. gasoline stocks fell 4.3 million barrels and distillate stocks, which include heating oil and diesel fuel, slid 4.0 million barrels -- both much above forecasts.
"The large refined product drawdowns and decline in crude oil imports combined to produce a bullish report," said John Kilduff, partner at Again Capital LLC in New York.
In London, ICE Brent crude for May delivery settled at $120.18 a barrel, rising 30 cents, after falling to $119.05, the lowest since February 17. On Tuesday, the contract fell 2.27 percent, front-month Brent's biggest one-day percentage loss since December 14.
U.S. May crude closed at $102.70 a barrel, gaining $1.68, narrowing Brent's premium to U.S. crude to $17.48, from $18.86 on Tuesday. On Tuesday, U.S. May crude had settled down $1.44 at $101.02, an eight-week low.
Brent's total trading volume surpassed that of U.S. crude and was 13.7 percent above its 30-day average, according to Reuters data. U.S. trading volume was down 0.4 percent from its 30-day average.
"The Brent premium is narrowing on spread play ahead of the expiration of May Brent on Friday," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
Other market players see investors closely watching renewed talks on Saturday between Iran and world powers over Tehran's disputed nuclear program.
"If the negotiations take out the geopolitical risks that the market has been concerned about, that could further narrow Brent's premium against U.S. crude," said Richard Ilczyszyn, chief market strategist and founder of iitrader.
The spread was also narrowing ahead of the planned reversal of the Seaway crude pipeline scheduled to begin in late May, which will carry crude from Canada and the Bakken formation to refineries along the U.S. Gulf Coast, McGillian and Ilczyszyn said. The reversal would help ease the glut of crude in the Midwest which had depressed U.S. oil futures prices.
Global benchmark Brent has risen 12 percent this year, supported by supply outages and the threat of supply disruption from Iran, although in recent sessions concern about rising inventories and demand has come to the foreground.
U.S. equities rose after five days of sharp losses, lending broad support to oil's rebound as investors opted for buying of riskier assets. .N
The rise of the euro against the dollar was also a factor in buying into oil, traders said.
Oil futures had fallen sharply earlier this week due to demand concerns following last week's data that showed a slower U.S. jobs growth in March and Tuesday's data showing that China's imports of major commodities, including oil, had softened last month.
Additional reporting by Robert Gibbons in New York and Alex Lawler in London; Editing by David Gregorio