* U.S. approves limited re-exports of foreign crude to Europe
* Cushing crude stocks fall by 1.6 million barrels - API
* Libya army says no order from PM to end ports blockade
* Coming up: EIA weekly oil stocks; 1530 GMT
By Florence Tan
SINGAPORE, Feb 5 (Reuters) - Brent crude edged up towards $106 a barrel on Wednesday, pulled higher by gains in U.S. benchmark oil after industry data showed a drop in inventories at the WTI contract's delivery point.
WTI crude futures were also buoyed by news that the U.S. government has for the first time in years authorized limited re-exports of foreign crude to Europe, raising hopes that such shipments may ease the supply glut caused by the sharp rise in shale oil output.
March Brent crude was up 21 cents to $105.99 a barrel by 0352 GMT after three straight sessions of losses.
U.S. crude for March delivery rose for a second session to $97.67, up 48 cents.
"WTI is leading the market," Yusuke Seta, a commodity sales manager at Newedge Japan said, adding that the U.S. government's decision had supported the contract.
"It's going to pressure Brent and hopefully the (crude supply) backlog in the U.S. will ease," he said.
The Department of Commerce has granted two licences to export crude to the UK since last year and another two to Italy, according to data Reuters obtained through a Freedom of Information Act request.
"While news of these export licences may excite investors, it's still early in the export debate," Morgan Stanley analysts led by Adam Longson said in a note, while also cautioning that the approval does not signal a policy change.
"There is little political upside to approve exports in an election year, especially with the issue's potential to infuriate both environmentalists and refiners."
The spread between WTI and Brent CL-LCO1=R is at its narrowest since mid-October as traders expect the startup of the Keystone south pipeline to drain excess oil from WTI's delivery point in Cushing, Oklahoma.
Data from industry group the American Petroleum Institute showed on Tuesday that crude stocks at Cushing declined by 1.6 million barrels last week, and overall distillates inventories fell by 1.5 million barrels as a frigid winter boosted demand.
Data from the Energy Information Administration will be released later on Wednesday.
On oil supply, exports from Libya's El Sharara oilfield have resumed while the North Sea Buzzard oilfield has restarted production after an outage on Monday.
A six-month blockade on Libya's eastern oil ports continued, with an army spokesman saying the military has not received any orders from Prime Minister Ali Zeidan to use force to end a protest begun by state oil security guards in August. (Reporting by Florence Tan; Editing by Tom Hogue)