* OPEC expected to keep production target unchanged
* API reports surprise 12.4 mln-barrel drop in crude stocks
* Coming up: U.S. EIA data, Wednesday 1530 GMT
(Updates with API data)
NEW YORK, Dec 3 (Reuters) - U.S. oil futures rose more than $2 a barrel to a four-week high on Tuesday for a third straight session of gains on ideas the January start-up of a pipeline from Cushing, Oklahoma, to the Gulf Coast would drain crude stocks at the giant storage hub.
Ahead of a Wednesday meeting of the Organization of Petroleum Exporting Countries (OPEC), at which production targets are expected to remain unchanged, Iran and Iraq on Tuesday gave notice of substantial oil output increases to come, saying others in the producer cartel will need to give way to make room for them.
TransCanada Corp's 700,000 barrel-per-day Cushing-to-Port Arthur, Texas, pipeline will begin service on Jan. 3, the company said in a tariff filing with the Federal Energy Regulatory Commission (FERC) on Monday after the trading session closed for the day.
"Here on our side of the pond, (prices rising are) a delayed reaction to the initiation of the pipeline that's going to kick in after the new year," said John Kilduff, a partner at Again Capital LLC in New York.
The pipeline should draw down inventories at Cushing, the delivery point of the U.S. oil futures contract, supporting U.S. crude futures relative to international benchmark Brent crude.
Brent crude for January delivery rose $1.17 to settle at $112.62 a barrel, after earlier hitting an 11-week high of $112.93.
U.S. crude, also known as West Texas Intermediate or WTI, rose by $2.22 to settle at $96.04 a barrel, its largest daily percentage gain since September 18.
Brent's premium to U.S. crude <CL-LCO1=R> narrowed by more than $1 to $16.58 from Monday's close of $17.63.
U.S. crude futures briefly were up more than $3 after the release of data from the American Petroleum Institute showed a drop of 12.4 million barrels in domestic inventories. That increase snapped a 10-week streak of builds that had added nearly 36 million barrels. A Reuters poll forecast a slight build of 300,000 barrels.
U.S. crude traded up $2.70 at $96.52 a barrel by 4:41 p.m. EST (2141 GMT).
Stockpiles of distillate fuels, which include diesel and heating oil, rose by 540,000 barrels, compared with expectations for a near 1.8 million-barrel drop, the API data showed.
A more closely-watched report from the U.S. government Energy Information Administration comes out on Wednesday at 10:30 a.m. EST (1530 GMT).
U.S. crude's three days of gains followed four days of losses during which the benchmark hit a six-month low of $91.77 a barrel.
That reversal has encouraged crude short sellers to close their positions ahead of U.S. employment data on Friday, which they expected to be positive based on strong manufacturing numbers released on Monday, said Rich Ilczyszyn, founder and chief market strategist of iitrader.com LLC in Chicago.
Spreads along the front of the curve were boosted by the sharp increase in U.S. oil prices and "showed tremendous strength," said Jeff Grossman, president of BRG Brokerage in New York. The spread between April and May futures <CLJ4-K4> widened by 26 cents to settle at 41 cents.
In Libya, where protesters have shut most oil fields and ports and helped support Brent prices, production has risen slightly in the past two weeks, Deputy Oil Minister Omar Shakmak said in an interview on Monday.
Exports of just 130,000 barrels per day remained a fraction of Libya's 1.4 million bpd output only five months ago.
Ministers from OPEC members Saudi Arabia and Algeria indicated on Monday that the oil cartel at its meeting in Vienna on Wednesday was likely to maintain its production target of 30 million barrels per day for the first half of 2014.
"The market is in the best situation it can be, demand is great, economic growth is improving," Saudi Arabian Oil Minister Ali al-Naimi said.
Investors will watch U.S. third-quarter GDP data due on Thursday and non-farm payrolls for November on Friday for clues on whether improvements in the world's biggest economy could prompt the Federal Reserve to announce tapering of its monetary stimulus at its meeting on Dec. 17-18.
(Additional reporting by Jeanine Prezioso in New York, David Sheppard in London, Jacob Gronholt-Pedersen in Singapore; Editing by Keiron Henderson, Jane Baird, Bob Burgdorfer and Meredith Mazzilli)