* API: US oil stocks down sharply, products up last week * Coming up: EIA inventory data, 10:30 a.m. EDT Wednesday * Dollar down, euro up, on optimism in euro zone NEW YORK, July 20 (Reuters) - U.S. crude oil futures rose more than a dollar to their highest level in a week Wednesday after industry data late Tuesday showed domestic crude stockpiles fell more than expected last week. Traders also cited hopes that debt problems in the euro zone and the United States may be worked out by policymakers. The dollar was down, encouraging investors to buy commodities. The August crude contract expires at the close. Soon to be front month September hit an early high of $99.27. The American Petroleum Institute said crude inventories fell 5.2 million barrels as refinery utilization rose 1.2 percentage points in the week to July 15. A Reuters poll forecast that crude stocks fell 1.7 million barrels while refinery usage edged up 0.2 percentage point. API data also showed gasoline stocks rose 2.0 million barrels, against the forecast for a 100,000 barrel draw. Distillate stocks, which include heating oil and diesel, rose 1.1 million barrels, API said, slightly less than the forecast for a 1.3 million barrel rise. FUNDAMENTALS * On the New York Mercantile Exchange, crude for August delivery was up $1.14, or 1.17 percent, at $98.64 a barrel, trading from $98.07 to $98.95, the highest since July 13's $99.21 session high. * NYMEX September crude gained $1.11, or 1.13 percent, to $98.97 a barrel, trading $98.36 to $99.27. * September Brent traded up $1.49, or 1.27 percent, at $118.55, moving between $117.44 and $118.86, the highest since July 14's $119.40. * U.S. crude's discount against Brent crude posted at around $19.50, after narrowing to $19.20 at the close on Tuesday. . * Brent crude oil futures could spike up to as high as $175 per barrel briefly next year if the global oil market stays tight, Bank of America Merrill Lynch said. The North Sea benchmark was likely to average $114 per barrel in 2012, compared with a projected average of $109 this year, and it saw room for U.S. light crude to trade near $102 in 2012, it said. * A low pressure system located about 440 miles (about 708 km) east of Bermuda has a 60 percent chance of developing into a tropical or subtropical depression during the next day or two, the U.S. National Hurricane Center said. * A group of Democrat and Republican senators offered an ambitious plan on Tuesday that could revive a stalemated U.S. debt negotiations and the prospect of a long-term deficit reduction deal to avert a default by the United States. * French ministers said that European leaders were less divided than the media was reporting and were likely to reach an accord at a summit on Thursday that will ease Greece's debt woes. * Iran has shot down an unmanned U.S. spy plane over its Fordu nuclear site, a state-run website reported on Wednesday, a day after it confirmed it was installing a new generation of advanced uranium enrichment centrifuges. MARKETS NEWS * Strong company results and hopes for a settlement iin the U.S. debt ceiling row lifted global equities while currency markets remained on edge over the euro zone debt crisis. * U.S. stock index futures rose as continued strong earnings, including from Apple Inc , underscored the growing sense companies were faring well despite the recent soft patch in the economy. * The euro rose against the dollar on cautious optimism that euro zone leaders may reach a deal to ease Greece's debt problems, but with gains capped due to concerns that the risks of contagion would remain. The dollar was down 0.46 percent against a basket of currencies. * Copper fell on Wednesday, but a softer dollar, tight supplies and good demand prospects kept the metal within sight of a record high and helped counter investor concerns over a euro zone debt crisis. * Gold steadied after retreating from the previous day's record high, as hopes for a positive outcome to Thursday's euro zone summit and signs that talks on raising the U.S. debt ceiling were progressing took some heat out of prices. UPCOMING DATA/EVENTS * U.S. existing home sales for June, 10 a.m. EDT (1400 GMT), Wednesday * U.S. Energy Information Administration's weekly oil inventory data, 10:30 a.m. EDT (1530 GMT), Wednesday. 8:41 LAST NET PCT LOW HIGH CURRENT DAY AGO CHNG CHNG VOL VOL CLc1 98.64 1.14 1.2% 98.07 98.95 4,586 203,973 CLc2 98.99 1.13 1.1% 98.36 99.27 36,506 182,989 LCOc1 118.55 1.49 1.3% 117.44 118.86 48,430 192,535 RBc1 3.1341 0.0192 0.6% 3.1174 3.1383 1,615 47,294 RBc2 3.0853 0.0204 0.7% 3.0687 3.0934 2,811 31,327 HOc1 3.1267 0.0287 0.9% 3.1033 3.1331 1,390 40,184 HOc2 3.1393 0.0286 0.9% 3.1195 3.1468 1,819 20,454 * NYMEX crude oil for August rose $1.14 to $98.64 a barrel by 8:41 a.m. in volume of 4,586 lots.

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