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US oil slips 0.97 pct after hitting 2016 highs

Low oil has done some damage: Kilduff
OPEC expects summer driving to fuel oil market
Long-term outlook for oil companies "doesn't bode well"

Oil gave up short-lived gains following mixed U.S. government data that showed a bigger-than-expected build in crude stockpiles, rising gasoline demand, and falling oil production.

Brent crude was down 61 cents at $44.08 a barrel , having briefly risen to a new 2016 high of $44.94 following the release of the EIA figures. U.S. crude was settled down 41 cents, or 0.97 percent, at $41.76, after also rising to a 2016 high of $42.42.

The Energy Information Administration reported U.S. crude inventories increased by 6.6 million barrels, bringing the total in storage to 536.5 million barrels in the previous week.

But a larger than expected draw in gasoline inventories softened the blow of soaring crude stocks. Gasoline fell by 4.2 million barrels to 239.76 million, compared with an analyst forecast of a 1.4 million barrel draw.

"There's this gasoline demand and it's otherworldly. I can't begin to describe it any other way," said Carl Larry, director of business development for oil and gas at Frost & Sullivan.

"Without a doubt, we're going to see record gas demand in the U.S. this year and that might even hit 10M b/d."

Production numbers in the United States also declined below 9 million barrels per day for the first time since late 2014 in a sign that the consistent decline in rig counts is having an impact on output, analysts said.

"Ultimately, the downside based upon inventory figures is limited because of two factors - the strong gasoline demand and falling U.S. crude production," said Anthony Headrick, energy market analyst at CHS Hedging.

Prices had been lower on Wednesday on concerns that a producer meeting on Sunday to discuss freezing output will do little to trim oversupply.

Comments by Saudi oil minister Ali al-Naimi in the al-Hayat newspaper in which he confirmed his country's position that an outright production cut was out of the question weighed on prices earlier, traders said.

"Forget about this topic," al-Naimi told the paper, when asked about any possible reduction in his country's crude output.

Iranian oil minister Bijan Zanganeh does not plan to attend the Doha meeting but Iran will be sending a representative, an Iranian journalist from the Seda weekly wrote on his twitter account on Wednesday.

Iran has already said it does not plan to participate in the freeze agreement as it seeks to boost its production in the post-sanctions era.

"We believe that any agreement to freeze output which excludes Iran would largely be an acknowledgement of existing conditions at the main participants," UBS said in a note on Wednesday. "Current spare capacity is confined mainly to Saudi, and we believe that the prospects for capacity growth elsewhere within OPEC are limited indeed some of the more peripheral producers are likely to see output decline this year (Venezuela, Algeria, Ecuador)."

But Morgan Stanley said the market may still be underestimating the potential near-term headline upside risk of the Sunday meeting.

"A deal not only seems likely — as leaks and prior announcements have suggested — but confirmation of the deal, greater clarity about the freeze or hints of further OPEC action could reinforce the bullish sentiment," the bank said on Wednesday.

The Organization of the Petroleum Exporting Countries lowered its forecast of world oil demand growth by 50,000 barrels per day (bpd) and said in its monthly report on Wednesday further downward revisions could follow.

OPEC pumped 32.25 million bpd in March, the group said citing secondary sources, up about 15,000 bpd from February.

A firmer U.S. dollar, which makes dollar-denominated commodities more expensive for holders of other currencies had also pressured prices.

Some signs of improving crude demand have appeared as China's crude imports, buoyed by strong demand from independent refiners and better refining margins, rose 13.4 percent in the first quarter from a year ago, customs data showed on Wednesday.

—CNBC's Tom DiChristopher contributed to this story.