UPDATE 8-Oil gains on bargain hunting even as political risks ease
* Iran says wants to resolve nuclear row within months
* Western envoys tout deal on core of U.N. Syria draft
* EIA data shows 2.6 mln barrel gain in US crude stocks
NEW YORK, Sept 26 (Reuters) - Oil prices firmed on Thursday, despite easing political worries and an improving supply picture, as traders sought bargains after sharp losses earlier this month.
However, the benchmark is still down over 4 percent in September, on track for its biggest monthly fall since April. It is down nearly $8 from its peak earlier in the month as fears have faded about conflict in the Middle East.
That steep decline has brought some buyers back in the market, analysts said.
"There had been some shorts in the market, and they're probably willing to cover, with equities higher," said Bob Yawger, director of commodity futures at Mizuho Securities in New Jersey. "The market was down for several days in a row and we are basically retracing on that."
Brent oil gained 40 cents to $108.72 a barrel by 1:36 p.m. EDT (1736), after slipping to $108 earlier in the session.
U.S. crude futures rose 22 cents to $102.88 a barrel.
The spread between the two benchmarks widened to $5.84 from Wednesday's close of $5.66.
U.S. Secretary of State John Kerry said he looked forward to a "good meeting" with Iran and major powers on Thursday, and a U.S. official said China agreed that Iran should respond positively to existing proposals on Iran's nuclear program.
Iran's new government said on Wednesday it wanted to "jump-start" talks with world powers to resolve a decade-long dispute over its nuclear program and hoped for a deal in three to six months.
This pushed oil down in late trading in New York on Wednesday after earlier strength.
"Iran is deflating the price of oil rather nicely," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.
"The market technically got oversold. A lot of us caught the short move down, but we couldn't break the lows last night."
Iranian Foreign Minister Mohammad Javad Zarif is set to hold talks on the nuclear issue on Thursday afternoon in New York with Kerry as well as diplomats from Britain, France, Russia, China and Germany.
The West's standoff with Iran over the OPEC member's nuclear program has helped support oil prices for nearly a decade. Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day.
At the same time, Iran has sharply criticized the International Atomic Energy Agency, the U.N. nuclear watchdog, over "baseless allegations" about its atomic activity, a document showed. The posting of the document on the IAEA's website comes before talks between the two sides on Friday to discuss a stalled inquiry into suspected bomb research by Tehran.
An impasse over the U.S. government budget and weak lending data in the euro zone kept enthusiasm in check for risk-sensitive assets such as oil.
The demand/supply balance was also capping prices, analysts said.
"With weaker fundamentals still ahead, oil prices (are) likely to remain under pressure," Morgan Stanley analysts said in a note on Thursday.
Supply was recovering from Libya, and bigger U.S. stockpiles were putting pressure on prices.
Oil inventories in the United States rose 2.6 million barrels to 358 million barrels last week, which helped push U.S. crude oil futures lower immediately after the U.S. Energy Information Administration released the data.
The data also showed U.S. exports of refined products last week reached the highest level on record at 3.4 million barrels per day, 17.5 percent higher than a year ago, as refineries processed crude at high rates.