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Oil Pares Gains; Pipeline and US Data in Focus

Susana Gonzalez | Bloomberg | Getty Images

Front-month Brent crude futures pared gains and nearby contracts turned lower on Wednesday on news of an expected restart of a shut North Sea pipeline system, while U.S. crude rallied on data showing domestic crude stocks fell last week.

Front-month Brent crude futures pared gains and nearby contracts turned lower on Wednesday on news of an expected restart of a shut North Sea pipeline system, while U.S. crude rallied on data showing domestic crude stocks fell last week.

The Brent February crude seesawed as the contract approached expiration at the end of Wednesday's session, while March and other nearby contracts fell.

News that operator of the Cormorant Alpha platform in the North Sea is preparing to restore the flow of an estimated 80,000 barrels per day (bpd) of crude oil in the Brent pipeline system, pulled crude futures back on both sides of the Atlantic.

A leak found on Tuesday halted production at the platform and shut the pipeline system that handles production from oilfields that contribute to the Brent stream.

"Pipeline outages in the North Sea have been putting (upward) pressure on Brent prices. Brent supply has been pretty unreliable over the past year and these interruptions have led to high price volatility," Jason Gammel, a commodities analyst at Macquarie, said.

Geopolitical risk and the possibility of supply disruptions in Africa and the Middle East remain a supportive factor for oil after Al Qaeda-linked Islamists on Wednesday claimed to have seized 41 hostages, including seven Americans, in a raid on a gas field plant in OPEC-member Algeria.

"Given how successful Algeria has been at protecting its oil and gas installations over the decades, a raid like this was seen as fairly unlikely," said Sam Ciszuk, analyst with British-based consultancy KBC Energy Economics.

Benchmark Brent crude oil futures for February ended the session at $110.55 a barrel on its final day of trading. March Brent ended at $109.68.

U.S. crude rose 94 cents to $94.22 a barrel.

Brent's premium to U.S. crude retreated back below $17 a barrel on Wednesday, as traders and analysts continue to expect the recent expansion of the Seaway pipeline carrying crude oil from the U.S. Midwest to the Gulf Coast to narrow the spread between the two benchmark contracts.

The spread between Brent and U.S. March contracts narrowed to near $15 a barrel on Wednesday.

Demand Concerns Remain

In Europe, however, demand for new cars fell in December to the lowest level since 1995, adding to figures the previous day showing Germany's economy shrank at the fastest pace in almost three years in the final quarter of 2012.

OPEC said it expected demand for its crude this year to be lower than initially thought because of higher supply from rival producers, indicating inventories could rise even after the recent output cut by Saudi Arabia.

China's GDP numbers due on Friday will be another indicator of prospects for oil demand.

The data is expected to show the pace of China's economic growth improved to 7.8 percent in the fourth quarter, according to a Reuters poll, snapping seven straight quarters of slowing expansion.