* Traders expect positive outcome from euro zone summit
* U.S. August crude contract expires, ends higher
* EIA weekly data shows sharp fall in U.S. crude stocks
* U.S. product stocks show build in week to July 15
* Obama to meet with Republican leaders at 2100 GMT
(Recasts, updates market activity)
By Selam Gebrekidan
NEW YORK, July 20 (Reuters) - Oil rose on Wednesday, bolstered by optimism on the eve of a euro zone summit and U.S. government data that showed a drawdown in crude inventories.
Euro zone leaders will convene in Brussels for an emergency meeting that could forge a rescue plan for debt-ravaged Greece. This led to the euro's rise against the dollar Wednesday which often lifts dollar-denominated commodities like oil.
U.S. government data also gave oil a boost, showing a 3.73-million-barrel draw in crude inventories, more than twice what analysts had expected in a Reuters poll.
The drawdown came as refiners stepped up utilization to 90.3 percent of capacity, the most in almost a year. [EIA/S]
"This is currency speculation as reflected in the oil market. The dollar-euro relationship continues to be on the front burner and that pushed oil prices higher," said Joseph Arsenio, managing director of Arsenio Capital Management in California.
U.S. crude briefly turned negative and Brent pared gains on Wednesday following a dip in U.S. equities as the looming deadline to raise the country's debt ceiling canceled out blowout earnings reported by technology companies. [ID:nN1E76J1Q3]
Brent crude < LCOc1> held just above Tuesday's settlement through the trading day and rallied towards the end. It settled up $1.09 at $118.15 a barrel after reaching a session high of $118.86.
U.S. crude < CLc1> for August delivery expired and settled at $98.14 a barrel, up 64 cents, or 0.66 percent, after trading from $96.64 to $99.02.
The September crude contract
Trading was light, as it has been over the past few days. U.S. crude volumes were 32 percent below the 30-day average and Brent crude volumes were 40 percent below the 30-day average.
CHURNING PROFITS
Midwest refineries led last week's jump in utilization rates after they operated at 96.6 percent of capacity to take advantage of high margins created by U.S. benchmark crude's deep discount against European Brent, government data showed.
The region's refiners get crude supplies priced against U.S. West Texas Intermediate, which was as much as $23.57 cheaper than European Brent last week. The spread narrowed to $19.65 on Wednesday as the August contract expired.
Higher refinery output last week overwhelmed the fledgling demand, which led to the 3.4 million barrel build in distillate stocks and the 757,000 barrels rise in gasoline inventories, the Energy Information Administration's (EIA) data showed.
Traders will be eyeing a possible second release of petroleum reserves by the developed world over the coming days although this met with opposition from a few European countries. [ID:nL6E7IK1YQ]
The U.S. Energy Department recently sold 30.6 million barrels of oil from the nation's strategic reserves as part of a coordinated injection of 60 million barrels from government stocks held by the 28 member nations of the International Energy Agency to cover the supply shortfall due to the conflict in OPEC member Libya.
Traders will also watch U.S. president Barack Obama's meeting with Republican House leaders at 5 p.m. EDT (2100 GMT) which could pull equities higher since the White House indicated it would accept a debt extension for a few days. [ID:nWNA4176]
(Additional reporting by Gene Ramos in New York; Editing by David Gregorio)