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UPDATE 7-US oil pares gains on stock build, Brent spread narrows

Elizabeth Dilts
Wednesday, 12 Feb 2014 | 1:56 PM ET

* U.S. crude stocks rise 3.3 mln barrels - EIA

* Cushing sees 2.6 mln barrel draw - EIA

* China's crude oil imports rise to record high in January

(Recasts, adds analyst quote, updates prices, changes byline/dateline, pvs LONDON)

NEW YORK, Feb 12 (Reuters) - U.S. oil rose on Wednesday but government data showing a larger-than-expected build in crude inventories pulled futures off the highs, with expectations for dwindling seasonal demand for heating fuels also helping curb the gain.

Brent, though moderately higher, was pressured as traders sold the European benchmark and bought WTI after the U.S. Department of Energy reported a large draw in stocks at the U.S. futures contract benchmark delivery point.

Brent drew support from a stronger 2014 oil-demand forecast from OPEC and Chinese data released late Tuesday that showed oil imports hit record highs.

The closely traded Brent/WTI spread dipped below $8 on Tuesday, nearing to a four-month low, and was last at $8.37 a barrel.

"I would expect the spread to continue to tighten," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com in Chicago, Illinois. "I think the days of the $25 spread are gone. As we ramp up production and any pipeline to the Gulf, that's going to contract the spread even more."

Brent crude for March delivery was up 20 cents at $108.88 at 12:53 p.m. EST (1753 GMT). U.S. crude was up 60 cents at $100.54.

Traders who bought contracts to cover short positions contributed to Brent's small gains, analysts said, as the front-month March contract expires on Thursday.

U.S. crude oil inventories rose by 3.3 million barrels, more than expected in a Reuters poll, data from the U.S. Energy Information Administration showed.

The build came in spite of a 2.6 million barrel draw on stocks at the U.S. oil hub in Cushing, Oklahoma, as TransCanada Corp's Gulf Coast pipeline begins to drain the glut there.

Sources said the approach of refinery maintenance season would cap gains in U.S. oil futures, and widen the WTI/Brent differential going forward.

Distillates, including heating oil and diesel, fell by a less than expected 731,000 barrels. Gasoline fell by 1.9 million barrels compared to estimates for a 100,000 barrel draw.

U.S. ultra-low sulfur diesel (ULSD), commonly known as heating oil, traded 1.35 cents lower at $3.0146 per gallon. Sustained cold across the United States in recent weeks has driven heating oil demand higher and lifted prices.

U.S. RBOB gasoline futures were last trading 1.82 cents higher at $2.7708 per gallon after rising to a session high of $2.7977.

Brent trading was focused in part on crude oil imports in China, the world's second largest oil consumer, which rose 11.9 percent in January from a year earlier.

The potential for further supply interruptions from Libya set a floor under Brent prices. Libyan protests once again shut pipelines from the Wafa oilfield in the west of the country and are threatening to block another line from the El Sharara field.

OPEC raised its 2014 outlook for world oil demand by 40,000 bpd, becoming the second major forecaster this week to predict higher fuel use.

(Additional reporting by Lin Noueihed in London and Jacob Gronholt-Pedersen in Singapore; Editing by Alden Bentley)