* Saudi Arabia to produce more crude in Q2 -sources
* Seaway pipeline to operate below capacity
* U.S. stockpiles of crude to rise, those of refined
products to fall -poll
* Coming Up: API weekly oil stocks data; 2130 GMT
By Florence Tan
SINGAPORE, Feb 20 Brent crude fell toward $117 a
barrel on Wednesday on the prospect of more Saudi oil supply
while investors look ahead to economic and oil inventories data
from the United States for more clues to demand in the world's
largest oil consumer.
The world's top exporter of crude oil, Saudi Arabia expects
to raise its output in the second quarter to satisfy higher
demand from China and drive economic recovery elsewhere, oil
industry sources said, but the exact rise in volume was unclear.
April Brent crude futures fell 19 cents to $117.32 a
barrel by 0340 GMT after posting their first gain in four
sessions on Tuesday. U.S. crude for March inched up 8
cents to $96.74. The contract expires later on Wednesday.
The news "is bearish because Saudi Arabia is raising crude
output during a lower demand season even though demand is
picking up," said Yusuke Seta, a commodity sales manager at
Saudi Arabia's move to reduce its output sharply by about
700,000 barrels per day (bpd) in the last two months of 2012 had
helped tighten supply and propped up oil prices, analysts said.
Supply is also rising in the United States, where weekly oil
inventories data is expected to show a build in crude
stockpiles, which can be bearish for oil. Refined product
inventories were expected to have declined.
A supply glut in the U.S. Midwest will persist as oil
shipments on the Seaway pipeline between the U.S. Midwest and
the Gulf Coast will run below daily capacity of 400,000 barrels.
The pipeline was expanded this year as operators had aimed
to divert crude from bloated tanks in Cushing, Oklahoma, the
delivery point for West Texas Intermediate (WTI). Despite the
problems, U.S. crude futures settled up 80 cents on Tuesday.
"I just don't know why it's so strong. It seems strange to
me, with all these problems at Seaway," Tony Nunan, a risk
manager at Mitsubishi Corp, said.
Stronger U.S. economic data due later this week pointing to
quicker growth could whet investors' appetite for risky assets
such as equities and oil. Bullish sentiment in the U.S. equities
markets rubbed off on oil on Tuesday, leading both benchmarks to
"China looks better now and the U.S. economy is going to
stabilise. But European numbers are worse," Nunan said.
France is expected to miss its economic growth target this
year while Italy's election next week has added to investor
uncertainty about the outlook for the euro zone.
Investors are also watching the outcome of Iran's nuclear
talks with major world powers next week although analysts do not
expect any breakthrough until after Iran's elections in June.
"It's probably neutral to bullish for oil markets," Nunan
said. "Oil can stay strong because of geopolitical risks that
are inherent in the system, but I think it's kind of overdone
(Reporting by Florence Tan; Editing by Clarence Fernandez)