* Dollar index weakens on China comment, supports oil
* Saudi Arabia intends to raise crude output in June
* OPEC to mull output targets at meeting on Wednesday
* Coming up: EIA oil stocks data, 10:30 a.m. EDT Wednesday (Recasts, updates with API data paragraphs 15-18, additional detail throughout)
By Robert Gibbons
NEW YORK, June 7 (Reuters) - Brent crude oil rose 2 percent on Tuesday, lifted by a weaker dollar and Middle East conflicts that also pushed its premium to U.S. crude to a record above $17 a barrel.
U.S. crude settled slightly higher after seesawing, hemmed in by news that Saudi Arabia planned to raise output in June regardless of the result of OPEC's Wednesday meeting.
Investors tried to assess whether the Organization of the Petroleum Exporting Countries would raise its production target only to codify current output above targets, or to signal intent to boost actual output and not just the target.
The U.S. dollar <.DXY> fell against a basket of currencies after a senior Chinese currency regulator warned about the risks of excessive dollar holdings. [USD]
U.S. stocks gave up gains and fell for a fifth straight session after Federal Reserve Chairman Ben Bernanke acknowledged a slowdown in the economy, but did not suggest further monetary stimulus to spark growth. [.N] [ID:nN07142566]
"OPEC raising production may already be priced in and Brent gets a lift from the euro strength and the weak dollar, and that market is more immediately affected by potential supply threats in the Middle East," said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.
Brent crude for July delivery
U.S. July crude
Trading volumes for Brent and U.S. contracts outpaced 30-day and 250-day averages.
U.S. gasoline
Brent's premium to the U.S. light, sweet crude contract
"It is the same old story. Oversupply in Cushing keeping WTI depressed while Brent is being used as an inflation hedge ... North Sea fundamentals are better than WTI as there have been some problems with Forties (crude) production," said Tom Bentz, director of BNP Paribas Commodity Futures in New York.
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GRAPHICS:
Brent/WTI arb: http://link.reuters.com/cuf99r
OPEC production vs. target http://r.reuters.com/zyg89r
Saudi production http://r.reuters.com/xad99r
Inflation-adjusted oil price http://r.reuters.com/zad99r
Oil consumption by region http://r.reuters.com/gyb89r
Saudi oil output vs rest of
OPEC: http://r.reuters.com/ryb89r
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U.S. OIL INVENTORIES
U.S. crude oil stockpiles fell 5.5 million barrels last week, with Cushing stocks down 1.5 million barrels, the American Petroleum Institute industry group said in a report late on Tuesday. [API/S]
Gasoline inventories fell 390,000 barrels and distillate stocks rose 1.8 million barrels, the API said.
Oil prices edged higher in post-settlement trading after the report. Crude stocks had been forecast down only 300,000 barrels, with distillate stockpiles unchanged and gasoline stocks up 1 million barrels, according to a Reuters poll of analysts ahead of the API report. [ID:nN07148027]
A similar report from the U.S. Energy Information Administration follows on Wednesday at 10:30 a.m. EDT (1430 GMT).
OPEC TO MEET, MIDDLE EAST IN TURMOIL
Saudi Arabia expects to lift output by more than 500,000 barrels a day in June, a senior Gulf industry official familiar with Saudi oil policy told Reuters. [ID:nLDE7560QM]
Riyadh wants OPEC to hike its target but so far only has the support of its allies Kuwait and the United Arab Emirates among the 12-member cartel.
While OPEC prepared to meet in Vienna, turmoil continued in Yemen, neighbor to Saudi Arabia, and Syria, while NATO aircraft hit Libya's capital. [ID:nLDE7552JK] [ID:nLDE7552JY] (Additional reporting by Janet McGurty and Gene Ramos in New York, Simon Falush and Zaida Espana in London and Rebekah Kebede in Perth; Editing by Dale Hudson and Marguerita Choy)