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UPDATE 7-U.S. oil settles at 2-month high on inventory decline

Jeanine Prezioso
Friday, 27 Dec 2013 | 4:00 PM ET

* U.S. crude oil tops $100 for first time in 2 months

* Steep declines in US crude and product inventories -EIA

* ULSD futures settle with highest gain since Sept. 6

* Strikes end at French refineries

(Adds news of possible ceasefire in S. Sudan, analyst's quote, updates to settlement prices)

NEW YORK, Dec 27 (Reuters) - U.S. crude oil futures settled on Friday with their highest gain in more than two months driven by the fourth straight weekly decline in oil inventories while Brent drew support from civil unrest in Africa that has cut off supplies.

Brent crude's gains were capped as traders sold contracts to unwind the spread between the European benchmark and its American counterpart.

Brent's rise was also checked after government forces said they had defeated South Sudanese rebels in the capital of the country's major oil producing state, after four days of intense fighting. By Friday afternoon, the government said it was ready for a ceasefire.

Escalating violence in South Sudan had threatened to reduce its crude output further, adding to supply outages in Libya, where production is running at a mere 250,000 barrels per day (bpd).

Prices were supported by U.S. government data that showed crude oil stocks in the U.S. fell 4.7 million barrels in the week ended Dec. 20, double the forecast of a 2.3-million-barrel draw.

Brent oil ended the day 20 cents higher at $112.18 per barrel, the highest settlement since Dec. 3. U.S. crude added 77 cents to settle at $100.32, the highest settlement price since Oct. 18. U.S. oil futures broke above the $100-mark for the first time since Oct. 21.

The spread between the two benchmarks <CL-LCO1=R> narrowed 57 cents to $11.86 per barrel from the previous session.

"The selling pressure in the spread showed up as WTI rallied," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut.

U.S. gasoline futures prices were tempered by the news that workers at Total's last striking refinery in France ended their two-week walkout, easing concern over product tightness. The contract ended less than one percent lower at $2.8161 per gallon.

U.S. refineries ran at high capacity to meet demand for refined oil products, which rose 5.3 percent from a year ago, indicating increased demand for U.S. oil. Distillate stocks, which include heating oil and diesel, fell close to four times the market forecast as the U.S. continues to export refined fuels to Europe and Latin America.

Ultra low-sulfur diesel (ULSD) futures settled 0.95 percent higher at $3.1241 per gallon, the highest settlement price since Sept. 6.

"There's strong demand here from the refining sector and the annual destocking is giving the market some support," said John Kilduff, a partner at Again Capital LLC.

"The demand numbers were supportive yet again from the products side."

Oil output in South Sudan had fallen by nearly a fifth to 200,000 bpd after the Unity state oilfields shut earlier this week due to fighting.

In Libya, a mix of militias, tribesmen and political minorities, demanding a greater share of the country's oil wealth and more political power, have shut most oilfields and ports, cutting oil output to 250,000 bpd from 1.4 million bpd in July.

(Additional reporting by Anna Sussman in New York and Peg Mackey in London; Editing by Andrew Hay and Marguerita Choy)