By Jacob Gronholt-Pedersen
SINGAPORE (Reuters) - Brent crude held steady above $112 a barrel on Wednesday, while the U.S. benchmark rose more than $1 to a five-week high after news of the scheduled start of a key pipeline that was expected to relieve a glut at the country's main oil storage hub.
U.S. oil built on a more than $2 jump in the previous session, after TransCanada Corp (TRP.TO) said it would begin operations at its Keystone XL pipeline on January 3.
The launch will allow rising inventories at the Cushing, Oklahoma oil hub to move to the U.S. Gulf Coast, where a large share of the country's refining capacity is concentrated.
"The market has been full of speculation about when the pipeline would start," said Chee Tat Tan, investment analyst at Phillip Futures in Singapore. "At least now investors have a start date and know what to expect."
Brent crude for January delivery was 7 cents lower at $112.58 a barrel at 0748 GMT, after settling $1.17 higher in the previous session. U.S. crude was up $1.07 at $97.11 a barrel, after settling up $2.22 on Tuesday.
U.S. crude, also known as West Texas Intermediate or WTI, has lost value relative to Brent due to infrastructure constraints amid rising shale oil production, causing a supply glut in Cushing, where the country's main oil contract Nymex is priced.
"I think the market may have overreacted (to the pipeline news), so perhaps we will see some correction later today," said Tan.
IRAN, IRAQ TO BOOST OUTPUT
Brent was less bullish as gains were curbed by comments from Iran and Iraq on plans to increase output by about 1 million barrels per day each, saying others in the producer cartel will need to give way to make room for them.
The comments came ahead of Wednesday's meeting in Vienna of the Organization of Petroleum Exporting Countries (OPEC), at which production targets are expected to remain unchanged at 30 million barrels per day for the first half of 2014.
Brent's premium to U.S. crude narrowed by almost a $1 to $15.63 from Tuesday's close of $16.58. Supply concerns in the Middle East and Africa combined with a glut in the U.S. had in recent months prompted investors to make bullish bets on the spread, which stood at more than $19 last week, up from $2.64 on Sep. 18.
"Many investors hold long positions in Brent and short positions in WTI, so with the news of the pipeline opening many are probably trying to unwind some of their spread positions," said Tetsu Emori, a commodities fund manager at Astmax Investments.
The U.S. benchmark was also supported by data from the American Petroleum Institute that showed a drop of 12.4 million barrels in domestic inventories and snapped a 10-week streak of builds that had added nearly 36 million barrels.
The more closely-watched report from the U.S. government Energy Information Administration is due at 1530 GMT.
A Reuters poll forecast a slight build of 300,000 barrels.
(Editing by Anand Basu and Muralikumar Anantharaman)