* U.S. EIA reports big rise in U.S. crude stocks
* Brent/U.S. crude spread briefly widens to more than $13
* U.S. crude falls to lowest since July 1
* China's crude stocks also rise in September
By Jeanine Prezioso
NEW YORK, Oct 23 Oil prices fell on Wednesday in
volatile spread trading following a surge in U.S. crude oil
inventories to the highest level since June.
U.S. crude led the complex lower for much of the day,
briefly pushing the contract's discount to international
benchmark Brent crude out to more than $13 a barrel, the widest
since April, before pulling back to $11 ahead of the settlement.
Late in the day, losses on Brent deepened and the spread
narrowed to settle at $10.94 as market watchers said the earlier
move was overdone.
"People hadn't realized that the differential is too big,"
said Michael Lynch, oil analyst and president of consultancy
Strategic Energy & Economic Research Inc in Winchester,
"With the spread widening so much, I think you're now seeing
people going in and shorting Brent."
Markets have been focused on a steep run up in U.S. crude
oil supplies as refiners put plants into seasonal maintenance,
forcing domestic production to back up into stockpiles.
Total U.S. crude oil stockpiles have risen by 24 million
barrels since mid-September, according to data from the U.S.
Energy Information Administration, as some 1.3 million barrels
per day (bpd) of refining capacity has been taken offline.
"You've seen a refinery rate drop of more than 6 percent,
which suggests when we don't run our refineries all out we have
to put oil back in storage," said Gene McGillian, an analyst
with Tradition Energy in Stamford, Connecticut.
U.S. crude for December delivery settled $1.44 per
barrel lower at $96.86, its lowest settlement since July 1,
after paring some losses from an earlier drop to $96.16.
Brent crude lost $2.17 per barrel, ending the day at
$107.80 per barrel, its lowest settlement price since Aug. 8.
Brent oil fell below both the 100-and-200 day moving averages
for the first time since Oct. 2.
Stockpiles at the Cushing, Oklahoma, delivery point for the
U.S. contract have showed builds over the past two weeks,
according to EIA data, snapping 14 straight weeks of drawdowns
that had helped support U.S. oil futures and tighten the
discount to Brent crude.
"People were not expecting Cushing builds in the last two
weeks," said Tariq Zahir, managing member of commodity fund
Tyche Capital Advisors in Laurel Hollow, New York.
"You had that trend for so many weeks. I think they
anticipated that to continue and Brent/WTI to get down to $2 to
Stockpiles also built in China, the second-largest oil
consumer, in September, official news agency Xinhua said on
Wednesday, as crude imports jumped to a record high.
Uncertainty over the future of Scotland's Grangemouth
refinery lent some early support to Brent. The refinery provides
steam to a plant that processes Forties, the largest crude oil
stream underpinning Brent futures.
The owner of Grangemouth has shut its petrochemical plant and
threatened to close the adjoining refinery.