* 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 (Reuters) - 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 Newedge Japan.
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 close higher.
“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 again.” (Reporting by Florence Tan; Editing by Clarence Fernandez)