Oil rose above $68 a barrel on Wednesday in choppy trade after U.S. government inventory data showed a sharp drop in gasoline inventories but a lower than expected decline in crude stocks.

U.S. crude for October delivery was up 14 cents at $68.19 a barrel by 1511 GMT (11:11 a.m. EDT), off an earlier two-week low of $67.05. London Brent crude fell 10 cents to $67.63 a barrel.

Oil prices initially fell after the EIA data was released as crude stocks were shown to have fallen by 400,000 barrels per day, less than the 600,000 barrel drop expected by analysts.

This was much less than Tuesday's report from the American Petroleum Institute showing crude oil stocks fell 3.2 million barrels.

However, the gasoline drawdown of 3 million barrels, way ahead of analysts expectations, was enough to lift investor sentiment for now.

The bullish nature of the gasoline number is notable, there was a perfect storm of higher demand and lower imports, it is saving crude markets right now, said Mike Zarembski, senior commodities analyst for Optionsxpress in Chicago.

WEAKER STOCK MARKETS

World stocks fell on Wednesday, limiting oil's gains, with both Asia and Europe rattled by concerns over the sustainability of this year's equity rally.

Wall Street started lower after a private employment report showed U.S. firms cut more jobs than anticipated in August and factory orders increased at a lower rate than expected.

On the supply side, Russian oil output hit a record high in August, nearing 10 million barrels per day as the country launched a new giant field, while gas production recovered from its lows on improved demand.

August oil output rose to 9.97 million barrels per day, up 0.6 percent from 9.91 million bpd in July and 1.5 percent higher than 9.82 million bpd in August 2008.

Supply from the Organization of the Petroleum Exporting Countries rose in August for a fourth consecutive month as Saudi Arabia, Nigeria and Venezuela increased their production, taking overall output discipline to 68 percent of the target from a revised 70 percent in July, a Reuters survey showed.

OPEC is likely to leave output targets unchanged when it next meets on September 9 in Vienna.

(Editing by Anthony Barker)