Oil rises above $69 after U.S. crude stocks drop

SINGAPORE, June 15 (Reuters) Oil prices picked up above on Thursday as refineries in the United States lifted production and drove down crude stocks.

U.S. light sweet crude futures rose 35 cents to .49 a barrel by 0300 GMT, after gaining 58 cents on Wednesday, though losses for the week remain at 3 percent. London Brent crude edged up 4 cents to .02 a barrel.

U.S. crude stocks fell 900,000 barrels last week as refiners increased runs to the highest level since before last year's hurricanes slammed into the U.S. Gulf, government data showed, surprising analysts who expected an average 100,000 barrel drop.

''Refiners continued to put pedal to the metal thanks to firm refining margins,'' said Alexandre Kervinio of SG Commodities. ''But (gasoline) demand is getting increasingly swamped by supply.'' Gasoline stocks jumped 2.8 million barrels, nearly triple expectations, while distillate fuel stocks also rose 2.1 million barrels, providing a more comfortable supply cushion for peak summer driving demand.

Other commodities such as copper also steadied after a sell-off earlier this week that came as investors' aversion to risk and a desire for liquidity pummeled financial markets.

Oil, the biggest component of several major indexes used by investors to gain commodities exposure, has been dragged down as well, though risks persist over Nigerian supply, the Atlantic hurricane season and Iran's nuclear dispute with the West.

Dealers are waiting for Tehran's formal response to a package of incentives offered by world powers in an attempt to end the stand-off over its atomic programme, which has heightened concerns over Iran's crude exports and Gulf supplies.

The 35-nation board of the International Atomic Energy Agency (IAEA) meets in Vienna on Thursday to debate the dispute, but no resolutions are expected.

The first tropical storm of the Atlantic hurricane season, Alberto, had briefly supported prices early this week, but faded from the market's radar completely after making landfall in northwest Florida on Tuesday, safely east of oil infrastructure.

The U.S. oil industry has better back-up plans than last year in case of another damaging hurricane season in the Gulf of Mexico, BP Plc, one of the region's largest producers, said on Wednesday.

Supply disruptions in Nigeria, where a quarter of production has been shut by militant attacks, and in Iraq are still supporting prices.

Iraq is considering reopening an oil export pipeline to Syria that was shut at the start of the U.S.-led invasion in 2003, its Oil Minister Hussain al-Shahristani told Reuters on Wednesday.

Prices remain nearly 14 percent up so far this year, keeping the Organization of the Petroleum Exporting Countries (OPEC) on edge about higher inflation and a switch to alternative energies that could undermine future demand for crude.

REUTERS CS RS1154