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UPDATE 6-U.S. oil sinks but Brent firm in choppy trade

Jeanine Prezioso
Friday, 22 Nov 2013 | 11:58 AM ET

* Investors focus on Iran talks, little hope of breakthrough

* Brent premium to US oil set to end at highest in 8 months

* China's oil demand expected to rise next year and in 2015

(Recasts to lead with U.S. oil, adds analyst's quote, changes dateline, pvs LONDON)

NEW YORK, Nov 22 (Reuters) - Benchmark Brent crude was little changed on Friday amid dwindling expectations of an imminent breakthrough in talks over Iran's nuclear program, while U.S. prices sank in choppy trade.

Heavy unwinding of the spread trade between European Brent and U.S. West Texas Intermediate (WTI) drove Brent's premium to an 8-month high of $16, the widest since March. European gas oil led the complex with a 1.4 percent gain, rising for a second day after refinery glitches in the Rotterdam area.

Iran and six global powers struggled on Friday to overcome stumbling blocks holding up an interim deal under which Tehran would restrain its contested nuclear program in exchange for some relief from punitive sanctions.

U.S. Senate Majority Leader Harry Reid said on Thursday he was committed to moving ahead with a tougher Iran sanctions bill, adding to uncertainty among some traders who had been betting on a drop in prices.

"I think shorts got caught off guard in all the markets," said Rich Ilczyszyn, chief market strategist at iitrader.com in Chicago.

Brent for January delivery rose 18 cents in choppy trading at $110.26 per barrel at 11:45 a.m. EST (1645 GMT), after trading to a six-week high of $111.40. The contract was on track for a second week of gains, as supply outages in Libya and rising oil demand in China supported prices.

U.S. crude fell 74 cents lower to $94.70 per barrel, after posting its biggest gain in nearly two months on Thursday. The contract was set to end the week less than one percent higher, snapping six weeks of declines.

Brent's premium over U.S. oil <CL-LCO1=R> was last trading at $15.62 a barrel after widening by nearly $1.40 to $16.02.

China's oil demand is expected to rise an average 3.8 percent a year in 2014 and 2015 with demand for transportation fuels a main factor.

China has been the engine of global oil demand in the past decade, accounting for almost half of total growth. A slowing economy, however, has weighed on its consumption this year.

(Additional reporting by Joshua Franklin and Lin Noueihed in London and Jacob Gronholt-Pedersen in Singapore; Editing by William Hardy, Dale Hudson and Andrew Hay)