UPDATE 8-Brent climbs more than $1; shrugs off Fed taper announcement

Wed Dec 18, 2013 3:40pm EST

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By Anna Louie Sussman

NEW YORK, Dec 18 (Reuters) - Brent crude oil futures on Wednesday shrugged off the U.S. Federal Reserve's decision to begin tapering its stimulus program, maintaining gains that widened its premium to U.S. crude.

Both Brent and U.S. crude oil pared gains immediately after the 2 p.m. EST (1900 GMT) announcement, then bounced back several minutes later.

The U.S. Federal Reserve announced plans to trim its aggressive bond-buying program on Wednesday but sought to temper the long-awaited move by suggesting its key interest rate would stay lower for even longer than previously promised.

The central bank said it would reduce its monthly asset purchases by $10 billion to total $75 billion. It trimmed equally from mortgage and Treasury bonds.

"The Fed is indicating that their data is showing a strong enough economy that they're pulling back (monetary stimulus)," said John Kilduff, a partner with Again Capital LLC in New York.

"That's bullish for crude oil and refined product."

Strong demand for Brent from Mediterranean refiners in the absence of Libyan supply also boosted the international benchmark. Mediterranean refiners have more than doubled purchases of North Sea crude grades since November, an unusual move that is expected to extend into 2014 with British and Norwegian oil as the go-to substitute for absent Libyan barrels.

U.S. crude gained scant support from data from the U.S. Energy Information Administration (EIA) showing crude inventories in the world's largest oil consumer dropped 2.9 million barrels to 372.3 million barrels, compared with forecasts of a 2.3 million barrel draw. The higher-than-expected draw was countered by data showing refinery runs fell 1.1 percent from the previous week.

Brent crude rose $1.19 to settle at $109.63, after settling nearly $1 lower on Tuesday.

U.S. oil rose 58 cents to close at $97.80, after earlier rising 79 cents to a high of $98.01 on strong housing data from the U.S.

U.S. RBOB gasoline futures gained 5.01 cents to close at $2.6973.

LIBYA RISK; PIPELINE TO START IN JANUARY

The spread between the two benchmarks settled at $11.83, nearly $1 wider than Tuesday's close.

Geopolitical risk in Libya, where on Sunday an autonomy movement in the east said it would not end a blockade of several oil-exporting ports, supported Brent.

U.S. crude also gained support from rising equity prices, but the filling of the 700,000 barrel-per-day TransCanada Corp pipeline from the Cushing, Oklahoma storage hub to the Gulf Coast kept gains in check.

TransCanada expects its new pipeline to begin service on Jan. 22, its chief executive said in an interview on Tuesday.

The company is currently filling the Cushing to Port Arthur, Texas, pipeline with the 3 million barrels of crude oil needed before it can be placed into normal operation.

"Libyan rebels still haven't turned over some territory in the oil-producing region, so you're getting some geopolitical support for Brent, coupled with the fact that we'll soon be getting a few hundred thousand barrels a day down to Port Arthur," said Stephen Schork, editor of the Schork Report in Villanova, Pennsylvania.

U.S. equities also rose after briefly plunging on Wednesday after the Fed's announcement.

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