Oil rises 3 percent on U.S. crude stockpile drop ahead of Fed

By Lisa Barrington

LONDON (Reuters) - Oil prices rose more than 3 percent on Wednesday, paring gains made earlier in the session after government data showed a drop in U.S. crude stockpiles but large builds in oil products.

U.S. crude oil stocks fell by 2.1 million barrels to 455.89 million barrels in the week to Sept. 11, the U.S. Energy Information Administration (EIA) said.

Gasoline stocks rose by 2.84 million barrels to 217.39 million barrels and distillate stocks were up 3.06 million barrels at 153.96 million barrels, the EIA said.

A Reuters poll had estimated that crude stocks rose 1.2 million barrels last week.

Front-month U.S. West Texas Intermediate (WTI) crude futures for October traded $1.79 higher at $46.38 per barrel at 1458 GMT, with U.S. gasoline prices up for a second straight day after a fall of around 10 percent since the start of the month.

Brent crude for November was up $1.69 at $49.44 a barrel. The Brent October contract expired on Tuesday.

The EIA stockpiles data contained both bullish and bearish signals.

"The data provides a bullish data point for crude oil given the bigger-than-expected drawdown in stocks. If the market continues to get data points similar to this week, which the markets have been anticipating for a while now, oil prices will continue to firm up and find support," Chris Jarvis, analyst at Caprock Risk Management in Maryland, the United States, said.

But Donald Morton, energy trader at Herbert J. Sims & Co. in Connecticut, said: "The gasoline and distillates build completely negates the crude draw. A total stockpile of 153 million barrels for distillates is huge. I can't really see anything bullish here. It's the Fed's show from here on."

Prices also gained support from lower-than-expected U.S. inflation data that decreased the likelihood of a Federal Reserve rate rise this week.

The U.S. Labor Department said on Wednesday its consumer price index fell 0.1 percent last month, the first decline since January, pointing to tame inflation that complicates the Fed's decision whether to raise rates.

Low interest rates restrain the dollar, in which oil is priced, making crude cheaper for holders of other currencies.

Oil prices have fallen by almost 60 percent since June 2014 on concerns about oversupply and slowing Asian demand, factors that continue to weigh on prices.

(Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson and Jason Neely)