UPDATE 5-U.S. Crude oil rises on frigid weather, global demand
* Oil supported by reports of higher global demand
* U.S. distillate stocks seen down - Reuters poll
* Coming Up: API oil inventory data 4:30 p.m. EST (2130 GMT)
(Rewrites, adds analyst, updates prices, byline/dateline, pvs LONDON)
NEW YORK, Jan 22 (Reuters) - U.S. oil climbed nearly $2 on Wednesday on expectations that frigid weather in the U.S. Northeast would prompt strong demand for heating fuel, amid forecasts for declining supplies.
The bitterly cold weather in the U.S. Northeast also sent U.S. natural gas prices to a two-and-a-half-year high, traders and brokers said.
Brent oil followed U.S. oil higher after two days of reports underscored strong global oil demand growth.
The International Monetary Fund (IMF) predicted higher growth in advanced economies, while China's central bank injected liquidity into money markets to ease bank-to-bank lending in the world's second-largest oil consumer.
A strong U.S. equities market earlier in the day also added to gains, prompting institutional investors to buy contracts and cover short positions.
Brent oil for March delivery climbed above $108 and was last trading at $108.18 per gallon at 12:21 p.m. EST (1721 GMT), near a 3-week high. U.S. crude oil futures rose $1.87 at $96.85, also near a 3-week high.
"Institution guys were down to $91 and that triggered a short cover," said Rich Ilczyszyn, chief market strategist and founder of iitrader.com in Chicago, Illinois. "The injection of liquidity to China boosts the energy outlook."
TransCanada said on Wednesday it was shipping crude oil on its 700,000 barrel per day (bpd) Gulf Coast pipeline, which transports crude oil from the U.S. storage hub in Cushing, Oklahoma, to the Gulf Coast.
The company expects the pipeline to average 525,000 bpd in its first year of service.
That helped narrow U.S. oil's discount to Brent to $11, the smallest since Dec. 20. The spread was last trading at $11.15.
U.S. RBOB gasoline futures rose nearly two percent to $2.6680. Ultra low-sulfur diesel futures (ULSD), commonly known as heating oil, rose about a percent to $3.0403, after a steep rise in prices on Tuesday.
Investors awaited the American Petroleum Institute's weekly report due at 4:30 p.m. EST (2130 GMT).
Analysts predict stocks of U.S. commercial crude and gasoline rose last week by 1.6 million barrels each, while distillate stocks, including heating oil and diesel fuel, dropped last week by 400,000 barrels on average, according to a Reuters poll.
The U.S Energy Information Association will release its weekly inventory data on Thursday at 11 a.m. EST (1600 GMT), one day later due to the Martin Luther King, Jr. holiday on Monday.
(Additional reporting by Ron Bousso in London, Manash Goswami in Singapore; Editing by Jane Baird, Keiron Henderson and Sophie Hares)