UPDATE 3-Oil rises to $106, lifted by Libya, product supply drop
* U.S. gasoline, distillate stocks fall far more than expected -API
* Crude oil stocks rise for seventh straight week -API
* Militias fight gun battles in Libyan capital Tripoli
* Iran negotiator says outline nuclear deal possible this week
* Coming up: U.S. EIA data at 1530 GMT
(Updates prices, adds quote, changes dateline from SINGAPORE)
LONDON, Nov 6 (Reuters) - Brent oil rose to $106 a barrel on Wednesday, supported by a fall in U.S. oil product inventories and worries about prolonged weakness in supply from Libya as the peak winter heating season looms.
Brent crude gained 68 cents to $106.01 a barrel by 0848 GMT, after settling 90 cents lower at a four-month low in the previous session. U.S. oil rose 70 cents to $94.07, after ending $1.25 down at its lowest in five months.
Data from industry group the American Petroleum Institute (API) showed that gasoline stocks fell 4.3 million barrels, far below analysts' expectations of a 338,000-barrel draw.
Distillate fuel stockpiles, which include diesel and heating oil, fell by 2.73 million barrels compared with expectations of a 1.3 million-barrel drop.
However analysts said the overall picture was still negative for oil.
"I would attribute (the market's rise) to a countermove after heavy losses in the previous day," said Carsten Fritsch, analyst at Commerzbank in Frankfurt.
Overall crude inventories rose by 871,000 barrels in the week to Nov. 1 to 382 million barrels, posting a seventh straight weekly increase.
"The general picture is still bearish," Fritsch said. "Note that API crude stocks rose despite sharply higher refinery utilisation."
Investors are now waiting for stockpile data from the U.S. Energy Information Administration (EIA) for clarity on demand at 1530 GMT.
Turmoil in Libya continued to worry oil investors.
Militia fighters on the government payroll fought each other on the streets of Tripoli in the worst clashes in the capital in weeks, highlighting the government's inability to secure oil fields and ports.
Strikes and armed protests have shut much of the OPEC member's oil output for months.
However, continued progress in talks between Iran and the West over Tehran's nuclear programme is taking some of the risk premium away from the market, helping cap gains.
Iran's top negotiator said that a framework deal on its nuclear programme was possible as early as this week.
Iran resumes negotiations in Geneva on Thursday with six world powers to try to end a stand-off over its programme, which the West suspects may be aimed at developing nuclear weapons, despite Iran's denials.
Gains were also capped after a report from the Institute for Supply Management (ISM) showed U.S. service-sector business activity picked up, spurring speculation that the U.S. Federal Reserve may begin to scale back monetary stimulus later this year.
A roll-back would boost the dollar, making dollar-denominated assets such as oil more expensive for holders of other currencies.
(Additional reporting by Manash Goswami in Singapore; editing by Jason Neely)