* U.S. jobless claims drop to near four-year low
* Iraq-Turkey pipelines shut after explosions
* Chinese insurer drops coverage for tankers with Iranian oil
* Coming up: U.S. nonfarm payrolls data for March, Friday (Recasts, updates volume, adds details and new analyst comment)
By Gene Ramos
NEW YORK, April 5 (Reuters) - Oil rose on Thursday after two straight days of losses, as a drop in U.S. jobless claims to near four-year lows and fears of Iran-related supply disruptions spurred a rebound from the previous session's heavy losses.
Data from the U.S. Labor Department showing first-time claims for state unemployment benefits fell to the lowest level since April 2008 gave U.S. prices an early boost, with further strength coming from short covering ahead of the three-day holiday weekend.
In recent months, new jobless claims have fallen sharply, boosting hopes that the end of a long stretch of heavy layoffs will lead to more hiring, ultimately boosting demand for motor fuel and other energy products.
Fears of supply shrinkage also helped push oil higher, highlighted by a note to clients from JPMorgan that Iran's crude oil production could fall 1 million barrels per day by the end of June to below 2.5 million bpd.
The reason is that refiners have cut oil demand from the Islamic Republic faster than previously expected, the bank said, ahead of a European Union embargo on Iranian that takes effect by July 1.
In London, ICE Brent crude for May delivery settled at $123.43 per barrel, up $1.09, climbing back from the session low of $121.82. For the week, the contract rose 55 cents, after three consecutive down weeks.
U.S. May crude settled at $103.31 a barrel, gaining $1.84, after climbing to the day's high of $103.40 in a late burst of short-covering. For the week, the contract rose 29 cents, ending three successive weeks of losses.
"The move higher on crude has also liquidated the gasoline crack, which hit a high of more than $40 yesterday, but has fallen to $36.75 today," added Tony Rosado, options broker ag GA Global Markets in New York.
Brent crude's premium against U.S. crude narrowed to $20.12 at the close, after hitting $21.72 on Wednesday, the widest since October, supported by U.S. government data showing oil stockpiles at the U.S. delivery hub in Cushing, Oklahoma, rose sharply last week to hit their highest level since May 21. CL-LCO1=R
Total U.S. crude oil inventories jumped by more than 16 million barrels over the past two weeks, the biggest increase since March 2001. The rise eased concerns about supplies after a string of outages from the North Sea, South Sudan, and Syria as well as the potential loss of Iranian exports due to U.S. and EU sanctions sent Brent prices up 15 percent this year.
Wednesday's oil futures slumped more than 2 percent as a result.
"With oil falling so sharply, traders simply grabbed WTI today, but upside movements on Brent and U.S. product futures were not as strong," said Tim Evans, energy analyst at Citi Futures Perspective in New York.
"Book squaring ahead of the long weekend and short-term technical support also figured in the day's trade," Evans added.
Thursday's Brent crude trading volume was down 4 percent while U.S. crude dealings fell 24 percent, both based on their 30-day average, according to Reuters data.
In early trade, supply disruption worries lifted prices on news that a major Chinese ship insurer will halt indemnity coverage for tankers carrying Iranian oil, a move that could seriously complicate Iran's oil exports before the EU embargo comes into force..
China is the top buyer of Iranian crude and the insurance move is the first sign Chinese refiners may struggle to obtain shipping and insurance coverage the4y nee3d to keep importing from OPEC's second biggest producer.
Japanese refiners also plan to cut crude imports from Tehran yet again in April as they shy away from renewing annual contracts.
Adding to supply worries, explosions had temporarily shut on Thursday both of the pipelines bringing about a quarter of Iraq's crude exports from Kirkuk to the Turkish port of Ceyhan on the Mediterranean.
News that a rocket fired from Egypt's Sinai desert struck the southern Israeli resort of Eilat on Thursday also fuelled the early rise in oil prices, traders said.
"Geopolitical and supply risk worries are pushing oil prices higher ahead of a three-day holiday weekend," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
A report that Royal Dutch Shell will cut production from the Mars field, a major supplier of sour crude from the Gulf of Mexico, according to trading sources, also added to supply uncertainties, particularly for U.S. crude.
JOBS DATA AWAITED
The latest weekly jobless claims report, which was just above analysts' forecasts, has no direct relationship to the March U.S. unemployment report, which is due on Friday.
Economists polled by Reuters expect the nonfarm payrolls report will show the U.S. economy added 203,000 jobs last month. That would represent a fourth straight month of solid job creation, marking the longest stretch of monthly employment gains topping 200,000 since 1999.
The unemployment rate is expected to hold at a 8.3 percent in March.
Should the data turn out to be below expectations and by Sunday night (when Asian equity markets begin trading) equities get hammered, "oil could make a charge to the downside" when U.S. trading resumes on Monday, said Richard Ilczyszyn, chief market strategist and founder of iitrader.comLLC in Chicago. (Additional reporting by Robert Gibbons and Jeffrey Kerr in New York, Ikuko Kurahone in London; editing by Sofina Mirza-Reid, David Gregorio, Matt Robinson, and Bob Burgdorfer)