* U.S. crude hits 9-month high
* U.S. September-October crude spread widens to record high
* Brent-WTI spread falls to narrowest since January 2011
* Coming up: EIA weekly oil data 14:30 GMT
By Anna Louie Sussman
NEW YORK, July 2 U.S. crude jumped to a
nine-month high above $99 a barrel on Tuesday as turmoil in the
Middle East unsettled investors, while signs of tightening
supply in the U.S. Midwest strengthened prompt U.S. crude prices
relative to other contracts.
The spread between European Brent and U.S. WTI crude for
September narrowed to less than $4 a barrel, the
lowest since early 2011, as some traders rushed to cover short
bets. Goldman Sachs closed its trade recommendation after
the spread on the August contracts collapsed from over $23 in
February to go well below its target of $5.
U.S. inter-month spreads stretched to their widest in years,
with the Sept/Oct WTI spread jumping at one point to a
record high of $1.24, up from just 34 cents a barrel last week.
The dramatic strengthening at the front end of the U.S.
crude oil curve has been tied to the restart last month of BP's
revamped 413,000 barrel-per-day Whiting refinery, which
is expected to help absorb more Canadian crude oil supplies that
might otherwise fill up tanks at Cushing, Oklahoma, the delivery
point for the U.S. oil futures contract.
"It reflects expectations that (supplies) are going to be
much tighter in the third quarter," said Addison Armstrong,
director of market research at Tradition Energy in Stamford,
"Refinery runs are very high, and they've got room to run
Oil also got a boost from turmoil in the strife-ridden
Middle East, where Libyan oil output has fallen by a third after
protesters shut several oilfields and anti-government
demonstrations in Egypt have raised concerns about the stability
of the whole region.
Brent crude futures for August delivery settled up
$1.OO to $104.00 a barrel after rising 0.8 percent the previous
U.S. crude futures for August settled $1.61 higher at
$99.60, after getting within 13 cents of the psychologically key
$100 mark and reaching its highest level since Sept. 2012.
"As we get closer and closer to what looks like a coup here
in Egypt, it's making front-month barrels all the more
precious," said John Kilduff, partner at Again Capital LLC in
"We're in the process of seeing our Midwest glut drain
before our eyes, and it's causing a revaluation of the barrels
depending on where they sit on the curve."
Traders and brokers also said that market players who were
short September versus October were being forced out as the
market moved against them.
"Right now there are a large number of market participants
who play the short spread trade getting squeezed on September
WTI. This move in Brent-WTI caught a lot of people unaware,"
said a hedge fund manager active in the energy space.
New pipeline and rail capacity has come online in recent
months to alleviate the glut of crude at Cushing that has built
up as more production from U.S. shale and Canadian oil sands
comes into the region. Many players expect drawdowns at the oil
hub to grow, supporting U.S. oil prices relative to Brent.
"Over 2 million barrels per day (bpd) of global refinery
capacity will return by late July on top of the 2.5 million bpd
that has returned over the past four weeks, providing ample
opportunity for runs to rise," Morgan Stanley said in a note.
Prices were also supported by data on Monday from the
Institute for Supply Management that showed U.S. manufacturing
activity grew in June.
Late on Tuesday, a report from the American Petroleum
Institute showed U.S. crude stocks fell by 9.4 million barrels
in the week through June 28, while crude stocks at Cushing rose
by 368,000 barrels. Some traders had expected stocks at Cushing
to fall due to decreased pipeline flows from Canada.
Investors await the more closely watched inventory report
from the U.S. Department of Energy's Energy Information