Oil steady above $119; Fed comments support

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* Iran negotiations still supportive

* Barclays says OPEC production at all-time high

* Coming up: U.S. weekly jobless claims; 1230 GMT

* U.S. crude stocks rise for fifth consecutive week -EIA (Updates throughout, adds quotes para 3, 5)

By Zaida Espana

LONDON, April 26 (Reuters) - Oil inched above $119 a barrel on Thursday, as optimism about a recovery in the U.S. economy was offset by efforts to mediate a dispute between the West and Iran that could avert an oil embargo.

The Federal Reserve's pledge to support growth in the world's top oil consumer, the United States, cheered global markets overnight.

"Bernanke's comments are good for oil: people think that if growth derails in the U.S. the Fed is ready to step in with further Quantitative Easing (QE) which gives very strong support to commodities", Danske Bank's chief FX and commodities analyst Arne Lohmann Rasmussen said.

"crude stocks rise for fifth consecutive week -EIA (Updates throughout, adds quotes para 3, 5)By Zaida EspanaLONDON, April 26 (Reuters) - Oil inched above $119 a barrel on Thursday, as optimism about a recovery in the U.S""The market also doesn't really believe we are finding a solution to the Iran issue."

Brent crude futures were 34 cents up at $119.46 a barrel by 1138 GMT. U.S. crude futures shed 9 cents to trade at $104.03.

"Without further easing, the risk of inflation should decrease as oil and other commodity prices should not continue their march higher simply based on added liquidity into the US system and a resultant fall in the US dollar," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

Oil prices also benefited as the dollar index hit a three-week low against a basket of currencies. Dollar-denominated commodities such as oil can sometimes benefit from a weaker greenback, allowing holders of other currencies to buy into the contracts more cheaply.

U.S. unemployment claims (12:30 GMT) and pending home sales data (1400 GMT) later today will provide more indications about the health of the world's largest economy.

Economists forecast a total of 375,000 new filings, compared with 386,000 in the prior week.

GEOPOLITICAL PREMIUM

Iran and Western nations have shown interest in a Russian proposal to help defuse the dispute over Tehran's nuclear programme, a Russian diplomat said.

Some analysts said the news was acting as a cap on prices, arguing that some of the geopolitical premium of around $10 a barrel tied to the Iran dispute is fading as negotiations continue.

"The geopolitical risk premium is shrinking as negotiations continue the next round of talks scheduled for 23 May," said VTB Capital analyst Andrey Kruychenkov.

Despite a potential softening of the positions, many market watchers believe that the Iranian embargo remains supportive for Brent this year. A poll of 38 analysts forecasts Brent will average $117.30 per barrel in 2012, a $2.60 increase from the previous poll in March.

OPEC PRODUCTION, U.S. STOCKS

There is however growing evidence that importers are trimming back crude purchases from Tehran as OPEC continues to pump at high levels. Despite being granted an exemption, Japan's customs-cleared crude imports from Iran fell 6.3 percent in March from a year ago.

"While Iranian output has slipped ... Iran's gentle downwards slope has been more than made up by increases elsewhere," said analysts at Barclays Capital in a report.

Total OPEC output is running at about 37.5 million barrels per day, its highest level ever, the report said.

"economy was offset by efforts to mediate a dispute between the West and Iran that could avert an oil embargo.The Federal Reserve's pledge to support growth in the world's top oil consumer, the United States, cheered global markets overnight."Bernanke's comments are good for oil: people think that if growth derails in the U.S"Iran has stored as much as 33 million barrels of crude on tankers as it faces difficulties to sell.

A large build-up in U.S crude inventories overnight also capping upside, although a drawdown in refined fuel stocks provided some relief, U.S. government data showed.

Crude stocks rose almost 4 million barrels in the week to April 20, up for a fifth week in a row, the Energy Information Administration (EIA) said. The average forecast in a Reuters poll had called for a 2.7-million-barrel build.

U.S. gasoline stockpiles fell by a larger-than-expected 2.24 million barrels, a 10th consecutive week of decline. (Reporting by Zaida Espana in London and Francis Kan in Singapore; editing by Keiron Henderson)

Energy.