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UPDATE 4-Oil up at year end, U.S. crude hits highest since mid-2015

* U.S. WTI crude jumps back above $60 per barrel

* U.S. output falls to 9.75 million bpd

* WTI headed for 12 pct annual gain; Brent up 17 pct

* Strong China demand further supports oil prices (New throughout, updates prices, market activity and comments, adds second byline, changes dateline, previous SINGAPORE/LONDON)

LONDON/NEW YORK, Dec 29 (Reuters) - U.S. oil prices rose above $60 a barrel on the final trading day of the year and hit their highest since mid-2015, as an unexpected fall in American output and a decline in commercial crude inventories stoked buying in generally thin trading.

International benchmark Brent crude futures also rose, supported by ongoing supply cuts by top producers OPEC and Russia as well as strong demand from China.

Oil prices are set to close out the year with strong gains. Brent is up 17 percent since the beginning of the year and U.S. West Texas Intermediate is up 12 percent. Prices are up nearly 50 percent since the middle of the year, after a springtime slump.

U.S. West Texas Intermediate (WTI) crude futures hit a June 2015 high of $60.32 and were at $60.12 a barrel at 8:55 a.m. EST (1355 GMT). Brent crude futures rose 27 cents to $66.41 a barrel. Brent broke through $67 this week for the first time since May 2015.

WTI prices were supported by data from the U.S. Energy Information Administration late on Thursday showing a modest drop last week in domestic oil production <C-OUT-T-EIA> to 9.75 million barrels per day (bpd) from 9.79 million bpd the previous week.

Rising Brent prices have been supported by a year of production cuts led by the Organization of the Petroleum Exporting Countries and Russia. U.S. output remains up almost 16 percent since mid-2016, but most analysts had expected production to break through 10 million bpd by year end, behind only top exporter Saudi Arabia and top producer Russia.

Analysts expect U.S. production to top 10 million bpd in the next few weeks and to keep growing, limiting efforts by other producers to cap global supplies.

"The U.S. shale impact is now encroaching on uncharted territory," analysts at RBC Capital Markets wrote this month, saying it had "redrawn the global crude flow map."

WTI prices were further boosted by an EIA report of a 4.6 million barrel weekly drop in U.S. commercial crude storage levels. Inventories are down by almost 20 percent from historic highs last March, and well below this time last year or in 2015.

A YEAR OF CUTS

In international markets, China has issued crude oil import quotas totalling 121.32 million tonnes for 44 companies in its first batch of allowances for 2018.

China's imports at around 8.5 million bpd, already the world's biggest, are expected to hit another record in 2018 as new refining capacity is brought online and Beijing allows more independent refiners to import crude.

Pipeline outages in Libya and the North Sea have supported oil prices, although both disruptions are expected to be resolved by early January.

The Forties pipeline was already pumping close to normal levels, trading sources said.

(Additional reporting by Henning Gloystein in Singapore; Editing by David Evans and David Gregorio)