* U.S. crude oil stocks rise 4.9 mln barrels - API data
* Gulf Coast pipeline to average 525,000 bpd in 1st year
* Oil supported by reports of higher global demand
* Coming up: EIA oil inventory data 1600 GMT Thursday (Adds API data)
By Elizabeth Dilts
NEW YORK, Jan 22 (Reuters) - Oil rose more than a dollar on Wednesday to settle at its highest price this year on the startup of a new major pipeline, expected to help eliminate a bottleneck that has depressed the U.S. futures for three years, and on expectations that frigid weather in the Northeast would prompt strong demand for heating fuel.
TransCanada Corp said it has begun to ship crude oil on its 700,000 barrel per day (bpd) pipeline, which flows from Cushing, Oklahoma, the pricing point for the New York Mercantile Exchange's West Texas Intermediate (WTI) contract, to Gulf Coast refiners. The company expects to transport an average 525,000 bpd in the first year of service.
"As they work up toward full capacity and the market begins to adjust to the additional supply of the refining centers, then we're going to see a narrowing between WTI and Brent," said Joseph Arsenio, owner of Arsenio Capital Management in Larkspur, California.
U.S. oil's discount to Brent narrowed to $11 in intra-day trade before tightening by 22 cents to settle at $11.54, the smallest discount since Dec. 19.
Brent oil for March settled up $1.54 at $108.27 per barrel, the highest settlement since Dec. 31. U.S. crude oil futures rose $1.76 to settle at $96.73, also the highest settlement since the last day of 2013.
Brent got an additional boost from the International Monetary Fund (IMF), which predicted higher growth in advanced economies, while China's central bank injected liquidity into money markets to ease bank-to-bank lending in the world's second-largest oil consumer.
DISTILLATES IN DEMAND
Oil prices were also helped by the bitterly cold weather that sent U.S. natural gas prices to a 2-1/2-year high, traders and brokers said.
U.S. RBOB gasoline futures settled 5.36 cents higher at $2.6771 per gallon, a penny less than the 100-day moving average of $2.6808. Ultra low-sulfur diesel futures (ULSD), commonly known as heating oil, rose 2.32 cents to settle at $3.0379, after a steep rise on Tuesday.
Oil pared gains after the American Petroleum Institute weekly report showed a whopping 4.9 million-barrel build in oil stocks compared with a 600,000 barrel rise forecast in the Reuters poll.
Distillates fell 2.3 million barrels, API data showed.
Analysts anticipated a 900,000-barrel drop in distillate stocks, including heating oil and diesel fuel, while gasoline stocks were expected to have risen 2.1 million barrels, according to a Reuters poll.
The U.S Energy Information Association will release its weekly inventory data on Thursday at 11 a.m. EST (1600 GMT), delayed a day due to the Martin Luther King Jr Day holiday on Monday. (Additional reporting by Ron Bousso in London, Manash Goswami in Singapore; editing by Jane Baird, Keiron Henderson, Sophie Hares and Marguerita Choy and Matthew Lewis)