By Barani Krishnan

NEW YORK (Reuters) - U.S. crude prices fell on Tuesday, hitting three-month lows, on renewed worries of a glut while Brent settled higher due to its better fundamentals versus U.S. crude.

Trade group American Petroleum Institute (API) said after the market's settlement that U.S. crude stockpiles fell by 827,000 barrels last week, compared with analysts' expectations for a drawdown of 2.3 million barrels. [API/S]

Official inventory data for the week ended July 22 is due on Wednesday from the U.S. Energy Information Administration (EIA). [EIA/S]

"The API data suggests there's still an oversupply of crude, that there's no particular indication of any sort of build in demand and that refiners can't go on making gasoline from crude because they're running out of places to put them," said Phil Davis, trader at PSW Investments in San Diego, California.

Gasoline stockpiles fell by 423,000 barrels, API reported, compared with analysts' expectations for a 36,000-barrel gain.

U.S. crude's West Texas Intermediate (WTI) futures <CLc1> settled down 21 cents, or 0.5 percent, at $42.92 a barrel. It extended losses after the release of the API data, sliding more than 1 percent. During the session, WTI fell to as low as $42.36 earlier, its lowest since April 20.

Brent <LCOc1> rose 15 cents, or 0.3 percent, to settle at $44.87 a barrel, and turned negative after the API data. During the session, Brent fell to $44.14, its lowest since May 10.

Brent's premium to WTI reached its highest since late April as investors bet the U.K. benchmark will continue rallying against its U.S. rival.

"The Brent-WTI spread play has picked up to Brent's advantage, given the depressing inventory situation for petroleum products in the United States," said Chris Jarvis, energy markets analyst at Caprock Risk Management at Frederick, Maryland.

Oil prices are still up more than 60 percent from 12-year lows of around $27 a barrel hit by Brent and about $26 struck by U.S. crude in the first quarter. But the rally has faded since the two benchmarks breached $50 in May, amid worries oil may be headed again for a glut like that which forced prices off from highs above $100 in mid-2014.

Oil major BP <BP.L> announced lower-than-expected profit and said its refining margins were the weakest for a second quarter in six years. Chief Executive Officer Bob Dudley said it may take 18 months or so to work off the market's stock overhang. [nL8N1AC13X]

(Additional reporting by Alex Lawler and Karolin Schaps in LONDON; editing by Chris Reese and Diane Craft)