UPDATE 3-Brent slips towards $112; WTI boosted by pipeline news

Joshua Franklin
Wednesday, 4 Dec 2013 | 5:32 AM ET

* Keystone XL pipeline may relieve Cushing supply bottleneck

* OPEC expected to leave production target unchanged

* WTI-Brent spread narrows more than $1

* API data showed drop in U.S. stockpiles

* Coming Up: U.S. EIA stockpiles due 1530 GMT

(Changes dateline from Singapore to London, updates quotes, prices)

LONDON, Dec 4 (Reuters) - Brent crude oil slipped towards $112 a barrel on Wednesday, while the U.S. benchmark rose more than $1 to a five-week high after news of the scheduled start of a key pipeline expected to relieve a glut at the country's main oil storage hub.

U.S. oil built on a more than $2 jump in the previous session, bucking a broader fall in markets, after TransCanada Corp said it would begin operations at its Keystone XL pipeline on Jan. 3.

That will allow stockpiles of crude oil inventories at the Cushing, Oklahoma, oil hub to move to the U.S. Gulf Coast, where a large share of the country's refining capacity is concentrated.

"News of the pipeline gives greater encouragement that the point when Cushing will start to draw is arriving," said Gareth Lewis-Davies, senior energy strategist at BNP Paribas.

Brent for January delivery was 31 cents lower at $112.31 a barrel at 1000 GMT, after settling $1.17 higher in the previous session. U.S. crude was up $1.18 at $97.22 per barrel, after ending up $2.22 on Tuesday.

Brent's premium to U.S. crude <CL-LCO1=R>, also known as West Texas Intermediate or WTI, narrowed by more than $1 to $15.09 from $16.58 at Tuesday's close.

"I think Brent crude probably is priced towards the high end at the moment," said Bjarne Schieldrop, chief commodity analyst at SEB Bank. "It'll be WTI that will gain ground."

U.S. crude has lost value relative to Brent due to infrastructure constraints amid rising shale oil production, causing a supply glut in Cushing, where the country's main oil contract Nymex is priced.

Brent was less bullish due to comments from Iran and Iraq on plans to increase output by about 1 million barrels per day each, saying others in the producer cartel will need to give way to make room for them.

The comments came ahead of Wednesday's meeting in Vienna of the Organization of Petroleum Exporting Countries (OPEC), at which production targets are expected to remain unchanged at 30 million barrels per day for the first half of 2014.

Libya's oil minister said he was "optimistic" that pressure on armed protesters to allow the resumption of production would see Libyan oil output restored to 1.5 million barrels a day later this month.

The U.S. benchmark was also supported by data from the American Petroleum Institute (API) that showed a drop of 12.4 million barrels in domestic inventories and snapped a 10-week streak of builds that had added nearly 36 million barrels.

A report from the U.S. government Energy Information Administration (EIA) is due at 1530 GMT.

"Today all eyes are on the EIA to see if that draw is reaffirmed," said BNP Paribas' Lewis-Davies.

A Reuters poll forecast a build of 300,000 barrels.

(Additional reporting by Jacob Gronholt-Pedersen in Singapore; editing by Anand Basu and Jason Neely)