UPDATE 8-U.S. crude soars to 16-mth high; discount to Brent under $2
* U.S. crude oil stocks fall 9.9 mln barrels last week -EIA
Brent premium to US crude narrowest since Dec. 2010
* China crude imports down 1.4 percent over first six months
By Anna Louie Sussman
NEW YORK, July 10 (Reuters) - U.S. crude oil prices surged nearly $3 a barrel on Wednesday to their highest in 16 months, narrowing its discount to Brent crude to less than $2 after U.S. data showed the biggest two-week decline in crude stockpiles on record.
U.S. crude oil inventories plunged about 10 million barrels for a second week in a row, highlighting the unexpectedly rapid tightening of the market after three years of pent-up supply due to a dramatic resurgence in domestic production.
Signs of the strongest refinery demand in six years and a more than 2 percent increase in gasoline demand from a year ago also aided gains, with New York Harbor gasoline futures topping $3 per gallon for the first time since March.
The onset of summer, the restart of BP's 400,000-barrel per day Whiting refinery and commissioning of new pipelines draining extra crude away from the New York Mercantile Exchange's delivery point at Cushing, Texas, have helped drain swollen supplies in the Midwest, causing an abrupt narrowing of the spread between U.S. WTI and Brent futures.
"Fundamentals have been the weak point in the last year, but these last two weeks of draws suggest that supplies seem to be tightening," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
U.S. crude has outperformed Brent for nine out of the past ten sessions, narrowing their spread to a 2-1/2 year-low of $1.82 during intraday trading and to $1.99 at the market close.
U.S. crude settled up $2.99 at $106.52 a barrel, posting its biggest daily rise since May and its largest three-week increase since March 2011.
Prices dipped only marginally after the release of minutes from the Federal Reserve meeting in June -- an event that set off a rout in many financial markets over fears that Fed Chairman Ben Bernanke would begin tapering stimilus measures -- which showed many officials wanted more reassurance the employment recovery was on solid ground before a policy retreat.
As the U.S. entered the summer driving season in earnest, gasoline stocks fell 2.6 million barrels as demand rose 2.5 percent from a year ago, Energy Information Administration (EIA) data showed. Refiners processed the most crude in six years.
"Given the high utilization rate and what's happening in Cushing with the effect of the rail transport and the pipelines, WTI is reacting strongly," said John Kilduff, a partner at Again Capital LLC.
Brent gained 70 cents to end at $108.51, its upside limited by concerns about sluggish growth in China, which reported lower-than-expected imports and exports and a 1.4 percent drop in crude imports for the first half of the year.
"While oil demand in the U.S. appears to be reviving, current figures from China point to slowing demand dynamism there," a Commerzbank research note said.
Despite disappointing data from China, OPEC expects a stronger economy to boost world oil demand by 1 million bpd in 2014, the highest growth since 2010.
In its monthly report, the Organization of the Petroleum Exporting Countries said its share of the world market will decline next year due to rising U.S. shale oil supplies.
Political risks were also supporting prices, and investors continued to keep watch on Egypt.