* US crude stocks rise sharply-API
* Exxon Midwest pipeline spill sparks spread trading
* Economic outlook for U.S./Europe fuels demand worries
(Updates with API data, paragraphs 12, 13)
By Anna Louie Sussman
NEW YORK, April 2 Brent crude oil settled lower
and U.S. crude settled slightly higher on Tuesday as traders
weighed concerns about demand and the possibility of a prolonged
pipeline outage in the U.S. Midwest.
Brent crude oil rose early, then reversed to fall as
much as $1 a barrel, before settling down 39 cents a barrel at
$110.69. The session low of $110 a barrel was below the 200-day
moving average of $110.17.
U.S. crude fell in the morning, then rebounded to
settle up 12 cents at $97.19.
The Brent-U.S. crude spread CL-LCO1=R narrowed in choppy
trading to settle at $13.50 a barrel, after widening to as much
as $14.66 during the session.
U.S. crude slipped in post-settlement trading, and was down
22 cents at $96.85 as of 4:52 p.m. in New York (2052 GMT).
Uncertainty surrounding the impact of the ruptured Exxon
Mobil Pegasus pipeline in the U.S. Midwest has kept U.S.
light sweet crude prices volatile. The premium of Brent to U.S.
light sweet crude ended at $13.50 CL-LCO1=R after the spread
between the two widened to as much as $14.66.
"Clearly the big factor is this Pegasus pipeline, and I
don't think anyone has a firm handle on how long it's down for,"
said Andy Lebow, vice president at Jefferies Bache in New York.
"The guesses I've seen have been from five days to 10 days
to two weeks. The longer it's down for, the more it will support
Brent at the expense of U.S. crude."
Traders said the pipeline problem is likely to keep crude
oil bottled up in the Midwest, depressing prices, as stockpiles
of oil should build up near the delivery point of the U.S. crude
oil benchmark contract in Cushing, Oklahoma.
Exxon said it was developing a plan to excavate, remove and
replace the ruptured portion of the Pegasus Pipeline, shut on
Friday after a leak released thousands of barrels of crude into
a housing development in Arkansas.
The company had not yet provided an estimate of when it
might reopen the nearly 65-year-old pipeline, which can carry
more than 90,000 barrels per day (bpd) of crude to Texas from
Late on Tuesday, the American Petroleum Institute released
data showing U.S. crude oil stocks rose 4.7 million barrels for
the week ended March 29, higher than the 2.2 million predicted
by a Reuters analyst poll.
At Cushing, stocks were down 287,000 barrels. But traders
said they may well rise in next week's data after the Pegasus
pipeline spill. Gasoline stocks decreased 5 million barrels
while distillate stocks fell 1.85 million barrels, both larger
declines than anticipated.
The U.S. government's Energy Information Administration
(EIA) releases its more closely watched report at 10:30 am EDT
(1430 GMT) on Wednesday.
US GASOLINE FALLS SHARPLY
U.S. gasoline futures posted the biggest percentage
drop in the oil futures complex, falling more than 2 percent to
below the 50-day moving average of $3.0477 a gallon, a technical
level closely monitored by chart watching traders and analysts.
"RBOB got below the 50-day moving average and that triggered
sell stops and sent it down more," said Mark Waggoner, president
at Excel Futures Inc in Portland, Oregon.
Gasoline futures settled down nearly 2 percent, or 6
cents, at $3.0408 a gallon.
While gasoline futures fell, U.S. heating oil
rose more than a penny.
A stronger dollar also put pressure on
dollar-denominated oil prices, while the euro weakened against
the dollar on euro zone data showing the region was well into
economic contraction last month.
British manufacturing also remained in contraction, and
European Union (EU) data showed unemployment in February was
steady at 12 percent.
The gloomy data from Europe followed Monday's report that
U.S. factory activity grew at its slowest rate in three months
in March, indicating a loss of momentum at the end of the first
Investors await Friday's closely watched U.S. March nonfarm
payrolls report for an indication if the headwinds from a
tighter fiscal policy, the sequestration or automatic spending
cuts, have slowed the economy of the No. 1 global oil consumer.
(Additional reporting by Robert Gibbons in New York, Peg Mackey
in London and Luke Pachymuthu in Singapore; Editing by Andrew
Hay, Bob Burgdorfer and Grant McCool)