* U.S., Europe sanctions ease fears of supply disruptions - ANZ * U.S. crude falls on expectations of inventory build * Brent's premium to U.S. crude to narrow in medium term - analyst (Adds analyst's comments, updates prices) By Keith Wallis SINGAPORE, March 18 (Reuters) - Brent edged higher above $106 a barrel on Tuesday, with bargain-hunting kicking in after the benchmark fell nearly $2 in the previous session as there seemed little likelihood of the Ukraine crisis interrupting Russian oil supplies. Crude prices had earlier rallied in advance of the reaction by the United States and Europe to the outcome of the weekend referendum on whether Crimea should join Russia. But prices then dropped when U.S. and European sanctions imposed on Monday targeted Russian and Crimea individuals and not broad trade, leaving oil exports from the second largest producer in the world untouched. "Initial U.S. sanctions were confined to a few select Russian and Ukrainian officials and allayed fears of any major supply disruptions to energy markets," said ANZ Research in a note on Tuesday. Brent crude rose 28 cents to $106.52 per barrel by 0611 GMT after dropping $1.97 to close at $106.24. The May Brent contract hit $106.16 a barrel on Monday, the lowest for a front month since Feb. 6. U.S. crude fell 8 cents to $98.0 after dropping 81 cents to close at $98.08 per barrel. With Brent falling overnight to the lower end of its recent trading range of $105-$110 per barrel, bargain-hunting was inevitable, said Tan Chee Tat, investment analyst at Singapore's Phillip Futures. With few signs that Crimea's vote to secede from Ukraine would result in widespread violence, attention in the oil markets turned to ample global supplies and worries about a weakening demand outlook. Oil prices have also been dampened by estimates that U.S. commercial crude inventories were expected to have risen last week by more than 2 million barrels, Tan said. U.S. crude inventories rose by 2.8 million barrels on average, according to a preliminary Reuters poll taken ahead of weekly data reports that are set to be released on Tuesday and Wednesday. Brent's premium to U.S. crude CL-LCO1=R, currently around $8-$9, could narrow in the medium term to about $6 as demand for gasoline picks up for the peak summer driving season in the United States, said Tony Nunan, oil risk manager at Japan's Mitsubishi Corp. With one of the coldest winters on record in the United States boosting demand for heating oil and nearing its end, refiners are preparing for consumers to switch to gasoline. In the midst of the situation in Ukraine, the European Union has begun discussing the need to reduce its reliance on Russian energy, British Foreign Secretary William Hague said on Monday. Hague also said more names could be added to the sanctions list of 21 Russians and Ukrainians imposed by the EU, depending in part on how Russia reacted to Crimea's application to join Russia following the weekend referendum. While there had been an easing of concerns the situation in Crimea and Ukraine could turn violent, it was still early days and would depend on whether Russia pushed into the rest of Ukraine, said Nunan. Oil production in Libya is currently less than 250,000 bpd following new protests, according to the state-owned National Oil Corp. The situation in Libya posed a bigger risk than Ukraine to the oil markets, said Nunan. "Libya could be torn apart by civil war," he said. Iran could increase production to offset any shortfall, but the United States was likely to put behind-the-scenes pressure on countries such as India to maintain purchases of Iranian oil at previous levels, Nunan added. (Editing by Tom Hogue and Muralikumar Anantharaman)

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