UPDATE 9-Oil pares gain on pipeline restart, U.S. data supports
* U.S. crude stocks fell last week - EIA
* Restart process begins for Brent pipeline system
* Natural gas field attacked in OPEC-member Algeria
* Coming up: U.S. jobless claims data 8:30 a.m. EST Thursday
NEW YORK, Jan 16 (Reuters) - Front-month Brent crude futures pared gains and nearby contracts turned lower on Wednesday on news of an expected restart of a shut North Sea pipeline system, while U.S. crude rallied on data showing domestic crude stocks fell last week.
The Brent February crude seesawed as the contract approached expiration at the end of Wednesday's session, while March and other nearby contracts fell.
News that operator of the Cormorant Alpha platform in the North Sea is preparing to restore the flow of an estimated 80,000 barrels per day (bpd) of crude oil in the Brent pipeline system, pulled crude futures back on both sides of the Atlantic.
A leak found on Tuesday halted production at the platform and shut the pipeline system that handles production from oilfields that contribute to the Brent stream.
"Pipeline outages in the North Sea have been putting (upward) pressure on Brent prices. Brent supply has been pretty unreliable over the past year and these interruptions have led to high price volatility," Jason Gammel, a commodities analyst at Macquarie, said.
Geopolitical risk and the possibility of supply disruptions in Africa and the Middle East remain a supportive factor for oil after Al Qaeda-linked Islamists on Wednesday claimed to have seized 41 hostages, including seven Americans, in a raid on a gas field plant in OPEC-member Algeria.
"Given how successful Algeria has been at protecting its oil and gas installations over the decades, a raid like this was seen as fairly unlikely," said Sam Ciszuk, analyst with British-based consultancy KBC Energy Economics.
"Either the Islamist group got lucky, or it really demonstrates how their capabilities have grown," Ciszuk added.
Expiring Brent February crude rose only 5 cents to $110.35 a barrel at 1:32 p.m. EST (1832 GMT), having traded from $110.24 to $110.84.
March Brent was down 20 cents at $109.43 a barrel, having swung from $109.34 to $110.35.
U.S. February crude was up 72 cents at $94 a barrel, having traded from $93.10 to $94.36.
Brent's premium to U.S. crude retreated back below $17 a barrel on Wednesday, as traders and analysts continue to expect the recent expansion of the Seaway pipeline carrying crude oil from the U.S. Midwest to the Gulf Coast to narrow the spread between the two benchmark contracts.
The spread between Brent and U.S. March contracts narrowed to near $15 a barrel on Wednesday.
U.S. OIL INVENTORIES
U.S. commercial crude inventories fell 951,000 barrels last week, the weekly report from the Energy Information Administration said on Wednesday, contrary to consensus expectations that crude stocks had increased.
Gasoline stocks rose 1.91 million barrels and distillate stocks rose 1.69 million barrels, smaller builds than expected in a Reuters poll of analysts.
"Last week's temporary shut down of the Seaway pipeline to get ready for the expansion of capacity had a bigger impact than some expected," said Phil Flynn, analyst at Price Futures Group in Chicago.
Crude stocks rose at the Cushing, Oklahoma, hub, delivery point for the U.S. crude contract, along with stocks in the Padd 2 Midwest region, while inventories in the Padd 3 Gulf Coast region fell.
"Saudi Arabia's recent production cuts probably helped cause the drop in crude imports," Flynn added.
Separate reports on Wednesday showing U.S. manufacturing output climbed in December, while low inflation lifted consumer's purchasing power, also lent support to oil prices.
DEMAND CONCERNS REMAIN
In Europe, however, demand for new cars fell in December to the lowest level since 1995, adding to figures the previous day showing Germany's economy shrank at the fastest pace in almost three years in the final quarter of 2012.
OPEC said it expected demand for its crude this year to be lower than initially thought because of higher supply from rival producers, indicating inventories could rise even after the recent output cut by Saudi Arabia.
China's GDP numbers due on Friday will be another indicator of prospects for oil demand.
The data is expected to show the pace of China's economic growth improved to 7.8 percent in the fourth quarter, according to a Reuters poll, snapping seven straight quarters of slowing expansion.