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 U.S. oil rose by as much as $1.28 as traders expected oil inventory
data to show that supplies were beginning to drain in earnest from
Cushing, Oklahoma, after the startup of TransCanada's Keystone south
pipeline.
The rise in the front-month U.S. oil contract forced its discount to
Brent narrower by $1.02.
Relieving the supply glut at Cushing supports U.S. prices that have
remained depressed for the past three years due to a lack of
infrastructure to free the oil.
Oil stocks at Cushing declined by 1.6 million barrels, and
distillates fell by 1.5 million barrels, data from the American
Petroleum Institute (API) showed Tuesday.
Traders also awaited the release of oil inventory data from the U.S.
Energy Information Administration at 10:30 a.m. EST (1530 GMT) on
Wednesday.
"The (Keystone) pipeline continues to bring that Brent-WTI spread
tighter," said Gene McGillian, analyst at Tradition Energy in
Stamford, Connecticut.
U.S. oil also drew gains from frigid weather in the United States,
which has significantly boosted demand as refiners pump out
distillates, which include heating fuels.
Meantime, Brent losses were steepened by worries over emerging
markets. Emerging market stocks pared losses but were still down
sharply for a second day on Tuesday.
"Heating oil is still a reason that refineries can continue to pay
up for WTI and not Brent," said Walter Zimmermann, chief technical
analyst at brokerage United-ICAP. "But the rest of the world is
struggling with at least 10 submerging markets and that's a big
negative for the outlook on Brent prices."
The same arctic chill that has boosted heating oil demand has slowed
U.S. economic gains, which has dented the outlook for longer-term
oil supply.
U.S. crude oil futures ended 76 cents higher at $97.19 a barrel,
bouncing after their largest daily percentage loss in nearly a month
on Monday as they tumbled with U.S. equities. The session high was
$97.71.
U.S. oil futures extended gains after the API data were released.
A stronger U.S. equities market also provided support.
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Traders have anticipated declining stocks at Cushing since the
southern leg of the Keystone pipeline went into service late last
month.
Those expectations caused the closely watched and heavily traded
spread between Brent and West Texas Intermediate to further narrow
on Tuesday. The spread settled at $8.59, after narrowing to $8.06 on
Monday, its smallest since Oct. 18. It has narrowed by some $7 since
mid-January.
It had narrowed to $8.30 per barrel by 5:19 p.m. EST.
Brent oil settled 26 cents lower at $105.78, the lowest settlement
price since Nov. 8.
Brent's losses were capped by tighter supply in the North Sea after
an output glitch at the 200,000 barrel-per-day Buzzard field. The
field has restarted and will return to normal levels in days, its
operator said.
Bad weather also supported prices as it reduced output from
Libya on Monday but Libya's National Oil Corp said loading had
restarted and production would return to normal on Tuesday.
U.S. commercial crude oil and gasoline stockpiles were forecast to
have risen last week, while distillates fell sharply, a Reuters poll
of analysts showed.
Rises in U.S. oil prices may be capped in coming weeks as U.S. oil
refiners move into maintenance season.
(Additional reporting by Lin Noueihed
in London and Florence Tan in Singapore; editing by Jason Neely, Keiron Henderson, Marguerita Choy, Chizu Nomiyama and Peter
Galloway)
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