* Cushing stocks fall by 1.6 mln barrels -API
* North Sea Buzzard field restarted, Libya loading resumes
* Brent-WTI spread narrows by $1
* Coming up: EIA inventory data at 10:30 a.m. EST Wednesday
(Adds API data)
By Jeanine Prezioso and Elizabeth Dilts
NEW YORK, Feb 4 Brent oil settled at a
three-month low on Tuesday, pressured by the downturn in
emerging markets, while U.S. crude ended higher, boosted by
continued demand for heating fuels and the expectation of a
large draw from storage at the benchmark's delivery point.
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
A stronger U.S. equities market also provided support.
Traders have anticipated declining stocks at Cushing since
the southern leg of the Keystone pipeline went into service late
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)