UPDATE 8-Oil down as U.S. inventories rise, spread trade volatile
* U.S. EIA reports big rise in U.S. crude stocks
* Brent/U.S. crude spread briefly widens to more than $13
* U.S. crude falls to lowest since July 1
* China's crude stocks also rise in September
NEW YORK, Oct 23 (Reuters) - Oil prices fell on Wednesday in volatile spread trading following a surge in U.S. crude oil inventories to the highest level since June.
U.S. crude led the complex lower for much of the day, briefly pushing the contract's discount to international benchmark Brent crude out to more than $13 a barrel, the widest since April, before pulling back to $11 ahead of the settlement.
Late in the day, losses on Brent deepened and the spread narrowed to settle at $10.94 as market watchers said the earlier move was overdone.
"People hadn't realized that the differential is too big," said Michael Lynch, oil analyst and president of consultancy Strategic Energy & Economic Research Inc in Winchester, Massachusetts.
"With the spread widening so much, I think you're now seeing people going in and shorting Brent."
Markets have been focused on a steep run up in U.S. crude oil supplies as refiners put plants into seasonal maintenance, forcing domestic production to back up into stockpiles.
Total U.S. crude oil stockpiles have risen by 24 million barrels since mid-September, according to data from the U.S. Energy Information Administration, as some 1.3 million barrels per day (bpd) of refining capacity has been taken offline.
"You've seen a refinery rate drop of more than 6 percent, which suggests when we don't run our refineries all out we have to put oil back in storage," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.
U.S. crude for December delivery settled $1.44 per barrel lower at $96.86, its lowest settlement since July 1, after paring some losses from an earlier drop to $96.16.
Brent crude lost $2.17 per barrel, ending the day at $107.80 per barrel, its lowest settlement price since Aug. 8. Brent oil fell below both the 100-and-200 day moving averages for the first time since Oct. 2.
Stockpiles at the Cushing, Oklahoma, delivery point for the U.S. contract have showed builds over the past two weeks, according to EIA data, snapping 14 straight weeks of drawdowns that had helped support U.S. oil futures and tighten the discount to Brent crude.
"People were not expecting Cushing builds in the last two weeks," said Tariq Zahir, managing member of commodity fund Tyche Capital Advisors in Laurel Hollow, New York.
"You had that trend for so many weeks. I think they anticipated that to continue and Brent/WTI to get down to $2 to $3."
Stockpiles also built in China, the second-largest oil consumer, in September, official news agency Xinhua said on Wednesday, as crude imports jumped to a record high.
Uncertainty over the future of Scotland's Grangemouth refinery lent some early support to Brent. The refinery provides steam to a plant that processes Forties, the largest crude oil stream underpinning Brent futures.
The owner of Grangemouth has shut its petrochemical plant and threatened to close the adjoining refinery.
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