Oil steadies on U.S. rig count drop, small crude build

By Barani Krishnan

NEW YORK (Reuters) - Crude futures erased early losses to settle steady on Wednesday after a smaller-than-expected supply build in the United States and drop in the number of U.S. rigs actively drilling for oil.

Traders and investors also covered short positions before U.S. markets close for Thursday's Thanksgiving holiday, analysts said.

"People did not want to be caught short ahead of the holiday with the global political tensions," said Phil Flynn, analyst at Chicago-brokerage Price Futures Group. "The combination of that and a drop in the rig count earlier helped push us higher."

On Tuesday, crude futures hit two-week highs after Turkey shot down a Russian warplane for alleged intrusion of its airspace, heightening political tensions in the Middle East.

Benchmark Brent crude futures settled up 5 cents at $46.17 on Wednesday, after falling more than $1 to a session low of $45.03.

U.S. crude's West Texas Intermediate (WTI) futures finished the session 17 cents higher at 43.04 a barrel. WTI had also slipped more than $1 to an intraday low of $41.72.

Trading volumes were light, typical of pre-holiday activity. Just over 360,000 lots of WTI futures were traded, versus Monday's volume above 500,000, Reuters data showed.

Oil prices rebounded after the U.S. Energy Information Administration said crude stocks across the country rose 961,000 barrels last week. A preliminary inventory report by industry group American Petroleum Institute had anticipated a 2.6-million barrel rise while a Reuters poll of analysts forecast a 1.2 million build.

Oil services firm Baker Hughes said the U.S. oil rig count fell by nine this week. Oil drillers have cut rigs in 12 of the past 13 weeks, Baker Hughes data showed.

Not all oil-related data on Wednesday was positive.

The EIA said gasoline stockpiles rose 2.5 million barrels, versus the 938,000-barrel build forecast in the Reuters poll.

Inventories of distillates , which include diesel and heating oil, rose by 1.0 million barrels, versus expectations for a 417,000 barrels drop.

While U.S. crude stocks as a whole rose by less than 1 million barrels, the Cushing, Oklahoma, delivery hub for WTI futures alone had a 1.74 million-barrel build, the EIA said. Big Cushing builds tend to have longer-term bearish impact on prices.

"We suspect rallies, if any, will be rather short-lived," said Tariq Zahir, a trader in crude oil spreads at Tyche Capital Advisors in Long Island, New York.

(Additional reporting by Meeyoung Cho; Editing by Chris Reese and David Gregorio)