LONDON - Oil prices rose on Thursday as a surprise drop in U.S. crude stockpiles and a halt in exports from Iraq's Kurdistan region offset a smaller-than-expected cut to Russian supplies.

Brent crude futures rose 40 cents, or 0.51%, to $78.68 a barrel at 0926 GMT, while West Texas Intermediate crude rose 52 cents, or 0.71%, to $73.49 a barrel.

U.S. crude oil stockpiles fell unexpectedly in the week to March 24 to a two-year low, the Energy Information Administration said on Wednesday.

The 7.5 million-barrel drop in crude inventories compared with analysts' expectations in a Reuters poll for a 100,000-barrel rise.

Further support came as exports from Iraq's northern region remain halted.

Producers have shut in or reduced output at several oilfields in the semi-autonomous Kurdistan region of northern Iraq following a halt to the northern export pipeline, with more outages on the horizon, company statements showed.

But the Kurdistan-Iraq premium in oil prices could vanish sooner than expected, analysts from Citi said Thursday.

The "changes in Iraq's domestic politics may lead to a durable political settlement very soon", said Citi, estimating that pipeline flows could grow by some 200,000 barrels per day (bpd).

These factors offset bearish sentiment following a lower-than-expected cut to Russian crude oil production in the first three weeks of March.

The 300,000 bpd production decline compared with targeted cuts of 500,000 bpd, or around 5% of Russian output, sources familiar with the data told Reuters.

Looking ahead, markets will be keeping an eye on U.S. spending and inflation data due on Friday and the resulting impact on the value of the U.S. dollar.

"While we think oil prices may remain volatile in the near term, we still expect rising Chinese crude imports and lower Russian production to lift prices over the coming quarters," UBS said in a note on Thursday.

(Reporting by Rowena Edwards in London, additional reporting by Jeslyn Lerh in Singapore; Editing by Sharon Singleton)