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UPDATE 6-U.S. crude climbs on surprise drop in U.S. gasoline stocks

Wednesday, 6 Nov 2013 | 1:23 PM ET

* EIA shows 1.58 mln barrels crude build vs 1.6 mln forecast

Gasoline stocks down sharply vs expected build -EIA

* Iran negotiator: outline nuclear deal possible this week

(Updates prices, changes byline, dateline (pvs LONDON)

By Anna Louie Sussman

NEW YORK, Nov 6 (Reuters) - U.S. crude futures rose by nearly $2 a barrel on Wednesday, rebounding from four-month lows, on unexpectedly large falls in U.S. fuel supplies to narrow its spread with European Brent crude by more than $1.

Brent edged higher, supported by concerns about prolonged supply outages in Libya as the peak northern hemisphere winter heating season looms.

Brent also rebounded after touching a four-month low in recent sessions.

Data from the Energy Information Administration (EIA) showed U.S. gasoline stocks fell by 3.8 million barrels last week, compared with forecasts in a Reuters poll for a 300,000-barrel decline.

U.S. distillates stocks fell 4.9 million barrels last week, against forecasts for a 1.3-million-barrel draw, to 118 million barrels, the data showed.

"I think the decrease in fuel inventories is the main driver in why the complex is moving higher," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut.

Brent crude gained 42 cents to $105.75 a barrel by 1:02 p.m. EST (1802 GMT), after touching the day's high of $106.41.

U.S. oil rose $1.67 to $95.04, and set a session high of $95.24. In the previous session, it posted its lowest settlement price in five months.

U.S. crude's steep rise narrowed its discount to Brent <CL-LCO1=R> by over $1 to $10.71 from $11.96 at Tuesday's close.

Crude oil inventories grew by 1.58 million barrels, slightly less than the forecast for 1.6 million, EIA data showed. The smaller-than-expected build tempered concerns about growing stockpiles, despite its being the seventh straight week of builds.

Analysts said the overall picture was still negative for oil, citing weak demand, particularly in Europe.

"I would attribute (the market's rise) to a countermove after heavy losses in the previous day," said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.

LIBYAN TURMOIL

Turmoil in Libya continued to worry oil investors.

Protesters at the Mellitah terminal in western Libya are pressuring Italian co-owner Eni to halt gas exports to Italy, Eni Chief Executive Paolo Scaroni told Italian radio on Wednesday.

The minority Amazigh group, or Berbers, have been inside the port for more than a week, demanding more political rights.

Strikes and armed protests have shut much of the OPEC member's oil output for months.

Iran resumes negotiations in Geneva with six world powers on Thursday to try to end a stand-off over its program, which the West suspects may be aimed at developing nuclear weapons, despite Iran's denials.

(Additional reporting by Simon Falush in London, Manash Goswami in Singapore; editing by Keiron Henderson and Jane Baird)