UPDATE 12-Oil rises on China-U.S. talks, gains capped by U.S. fuel build

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* Oil prices on track for solid gains in the first week of2019

* U.S., China to hold trade talks on Jan. 7-8

* U.S. crude stocks flat, product stocks jump - EIA

By Stephanie Kelly

NEW YORK, Jan 4 (Reuters) - Oil rose 2 percent on Fridayafter proposed trade talks between the United States and Chinaeased some fears about a global economic slowdown, but gainswere capped after the United States reported a sharp build inrefined product inventories.

Brent crude futures LCOc1 gained $1.09, or 2 percent, to$57.04 a barrel, by 1:09 p.m. EST (1809 GMT). U.S. West TexasIntermediate (WTI) crude CLc1 futures rose 83 cents to $47.92a barrel, a 1.8 percent gain.

After both benchmarks fell sharply last year, prices were ontrack for solid gains in the first week of 2019, despite recentdata that added to concerns about a slowing global economy.

Brent was set to increase about 9.3 percent for the week,while WTI was on track to rise around 5.7 percent.

Prices pared gains on Friday after data from the U.S. EnergyInformation Administration showed a sharp increase in productinventories as refiners ramped up utilization rates USOIRU=ECI to 97.2 percent of capacity, the highest rate on record for thistime of year.

Gasoline stocks USOILG=ECI rose 6.9 million barrels lastweek, while distillate stockpiles USOILD=ECI grew 9.5 millionbarrels, the EIA said, compared with forecasts for builds under2 million barrels.

U.S. crude stockpiles were little changed. USOILC=ECI

"The significant build in product inventory has put a damperon the oil price rally we saw earlier this morning," said AndrewLipow, president of Lipow Oil Associates in Houston.

U.S. energy firms this week cut oil rigs for the first timein three weeks, reducing the rig count RIG-OL-USA-BHI by eightto 877, General Electric Co'sGE.N Baker Hughes energyservices firm said. Some analysts were forecasting the firstdecline in the rig count - an indicator of future production -in three years in 2019.

Oil drew support from comments by China's commerce ministry,which said Beijing would hold vice-ministerial trade talks withU.S. counterparts on Jan. 7-8.

Washington and Beijing have been locked in a trade war formuch of the past year, disrupting the flow of hundreds ofbillions of dollars worth of goods and hampering growth.

China's services sector extended its expansion in December,a private survey showed on Friday, bucking a trend of downbeateconomic data.

"Recent Chinese data is not confirming the doom-and-gloomtrend," said Olivier Jakob, oil analyst at Petromatrix. "Andyou've got OPEC cutting."

A robust U.S. jobs report also added to broader marketoptimism.

Despite some demand-side worries, oil has received supportas supply cuts announced by the global coalition of producersknown as OPEC+ kick in.

The Organization of the Petroleum Exporting Countries,Russia and other non-members agreed in December to reduce supplyby 1.2 million barrels per day (bpd) in 2019. OPEC's share ofthat cut is 800,000 bpd. A Reuters survey on Thursday found OPECsupply fell by 460,000 bpd in December.

The focus now will be on whether producers deliver furthercurbs in January to implement the deal fully. Iraq said onFriday it was committed to the deal and would keep its oilproduction at 4.513 million bpd for the first half of2019.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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