* Seaway Pipeline expansion in focus
* Manufacturing in United States, China expanded in December
* Traders eye ECB meeting this week
(Adds settlement price for U.S. crude, quote)
By David Sheppard
NEW YORK, Jan 7 Brent crude oil prices were
steady above $111 a barrel on Monday while U.S. crude futures
edged higher, cutting the spread between the two benchmarks by a
penny to its narrowest since September as a U.S. pipeline
expansion project neared completion.
The Seaway Pipeline expansion, which will bring more crude
oil from the bottlenecked midcontinent market around Cushing,
Oklahoma, to premium-priced refiners on the Gulf Coast, is due
to be completed by Friday, the companies involved said last
The pipeline's expansion to 400,000 barrels per day (bpd)
from 150,000 bpd should help reduce the crude oil glut around
Cushing - delivery point of the U.S. benchmark futures contract
- created by rapid increases in U.S. and Canadian production
over the past three years.
In London, the Brent crude oil contract reversed
early losses to rise 9 cents by the close, finishing at $111.40
a barrel. The February contract traded between a high of $111.67
a barrel and a low of $110.54 a barrel on the day.
The U.S. crude oil future contract for February
delivery, which is delivered into storage tanks at Cushing, rose
10 cents to settle $93.19 a barrel.
Its discount to Brent narrowed to the lowest level since
September, touching $17.80 a barrel at one stage, before
widening back to $18.35 a barrel. In November the spread had
briefly widened above $26 a barrel.
Both crude benchmarks rose last week after U.S. lawmakers
reached a last-minute agreement to avert the so-called "fiscal
cliff," or tax increases and spending cuts that would have
threatened growth in the world's top oil consumer.
"There is a bit of risk-off sentiment in the market today,"
said Carsten Fritsch, an analyst at Commerzbank. "Maybe also a
bit of profit-taking after the gains late last year and early
Still, reports on Friday showed U.S. employers kept up an
even pace of hiring in December and the services sector expanded
briskly. This, as well as earlier data showing expansion in U.S.
and Chinese manufacturing, bolstered the outlook for oil demand.
This week, investors will watch the European Central Bank's
monthly meeting on Thursday to see if it hints at an interest
rate cut early this year.
Figures on Monday showed euro zone factory prices fell in
November for the first time in five months, dragged by a slide
in the cost of energy and giving the ECB room to consider a
possible interest rate cut.
Investors will also watch the U.S. Federal Reserve's stance
on monetary easing, after top Fed officials and some U.S.
economists suggested the central bank might halt asset purchases
this year. The euro rose slightly against the dollar on Monday.
While oil supply outages and export cuts from the North Sea,
South Sudan, Iran and Nigeria supported prices in 2012, the
market was expected to be in surplus in 2013.
According to the International Energy Agency, supply from
outside the Organization of the Petroleum Exporting Countries
will rise by 890,000 barrels per day in 2013, just ahead of the
rate of global demand growth.
U.S. bank Morgan Stanley, in a report on Monday, was bearish
on oil's immediate prospects.
"Although we are constructive oil for the year as a whole,
we see limited near-term upside, but would look to buy dips as
we approach 2H13," said the report by analysts including Hussein
"Assuming no new supply outages, and with more predictable
U.S. supply growth on track for now, we are cautiously
optimistic on supply growth in 2013."
OPEC oil output fell in December, surveys showed last week,
partly due to curbs by top exporter Saudi Arabia in response to
lower demand. More cutbacks by the Saudis may be needed to
prevent falls in prices.
"The oil price is remarkably steady, very much the same at
the beginning of this year as it was a year ago. It shows what a
good job the Saudis in particular are doing," said Christopher
Bellew, a broker at Jefferies Bache in London.
"The question this year will be, they were good at
increasing output because of shortfalls last year, will they be
as good at cutting their output back as non-OPEC output grows?"
A surge in U.S. output created by advances in horizontal
drilling and hydraulic fracturing - commonly known as "fracking"
- have helped steady oil prices despite supply disruptions
elsewhere. Brent crude oil prices averaged just under $112 a
barrel in 2012, less than a dollar higher than in 2011.
(Additional reporting by Alex Lawler in London and Ramya
Venugopal in Singapore; editing by Leslie Gevirtz and David