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Brent rises on spread trade; cold supports U.S. oil

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[February 06, 2014]  By Elizabeth Dilts

NEW YORK (Reuters)  Brent crude oil futures rose on Wednesday as traders took profit on an over-extended spread trade with U.S. oil, while the American benchmark took some support from record heating oil demand due to continued freezing weather.

Stockpiles of distillates, that include heating oil, fell last week by 2.4 million barrels, nearly double what analysts expected, according to the data from the U.S. Energy Information Administration (EIA).

In the heavily populated U.S. East Coast, which has been repeatedly hit with snow in recent weeks, distillate stocks dropped in the week to Jan. 31 to their lowest levels since April 2003.

The data also showed that crude stocks at Cushing, Oklahoma, from where the southern leg of TransCanada Corp's Keystone pipeline began draining oil to send to the Gulf Coast, fell by 1.6 million barrels.

The draw at Cushing is supportive for U.S. crude oil prices because it relieves a supply glut that has depressed prices over the last three years. This was the first week since TransCanada's pipeline started up that weekly data showed a reduction in stocks at Cushing.

The draw was anticipated, but it drove U.S. crude higher earlier in the session, narrowing its discount to Brent to the tightest in nearly four months.

"I think the Cushing number was baked into the cake  people expected it," said Matt Smith, analyst at Schneider Electric in Louisville, Kentucky. "We are seeing the lag in the Brent-WTI spread because of the Cushing draw" and profit taking.

U.S. crude's discount to Brent <CL-LCO1=R> tightened to $7.94 per barrel on Wednesday, the narrowest point since Oct. 10. It settled 28 cents wider from the previous session at $8.87.

Brent crude rose 47 cents to $106.25 per barrel after three straight sessions of losses. U.S. crude rose 19 cents to $97.38.

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U.S. ultra-low sulfur diesel (ULSD), commonly known as heating oil, settled 1.39 cents higher at $2.9968 per gallon, after rising to a session high of $3.0149.

U.S. RBOB gasoline futures settled up 3.82 cents or 1.47 percent at $2.6413 per gallon, after EIA data showed a much smaller than expected build in stocks.

EIA data also showed a smaller-than-expected build of crude oil of 440,000 barrels.

Demand for distillates fell slightly on the expectation that winter weather will finally moderate and curb demand for heating fuels.

(Additional reporting by Alex Lawler, Florence Tan and Simon Falush; editing by William Hardy, Jane Baird, Marguerita Choy and Chris Reese)

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