UPDATE 8-Brent crude falls, briefly at discount to U.S. crude
* Brent, U.S. crude both retreat over $1 from earlier highs
* U.S. crude premium to Brent for first time since Oct. 2010
(Updates prices, adds Brent-WTI spread reversal)
NEW YORK, July 19 (Reuters) - U.S. crude briefly traded at a premium to the global benchmark Brent on Friday for the first time since October 2010 as more traders piled into the volatile spread trade on signs of stronger demand for U.S. crude.
While prices on both sides of the Atlantic fell, Brent's losses outpaced U.S. crude's throughout the latter part of the trading session. At approximately 1:05 p.m. EDT, U.S. crude for September delivery briefly surged to a 5-cent premium over Brent in heavy trading volume.
The spread then reversed, with U.S. crude moving back to a 24-cent discount to Brent a half an hour later.
As recently as February of this year, Brent traded at a $23 premium to U.S. crude.
"It was kind of a historic moment, really. It's come a long way so fast," said Phil Flynn, energy analyst at the Price Futures Group in Chicago, Illinois.
"I think the trend is going to continue because the quality of U.S. crude is high, and it's coming from a country that's a major user of oil with an economy that's doing better than the alternatives right now."
Both benchmarks reversed earlier gains as traders booked profits ahead of the weekend and some of the longs in the market trickled out.
The losses followed three-week-long rallies in which both benchmarks topped $109 a barrel and hedge funds and speculators added their most bullish positions since the Libyan civil war.
"Traders who bought the breakout at $108 don't want to get too piggish, so you've got some profit-taking and you've got some shorts trying to get into the market," said Richard Ilczyszyn, chief market strategist at iitrader.com.
Brent for September fell $1.11 to $107.59 a barrel by 1:27 p.m. EDT (1727 GMT), after hitting $109.18 earlier in the session.
August U.S. crude, commonly called West Texas Intermediate or WTI, hit a 16-month high of $109.32 earlier in the day before falling 21 cents to $107.83.
U.S. oil for September delivery was down 45 cents at $107.36 a barrel.
The convergence between the two front-month crude benchmarks comes as increased pipeline capacity has drained a glut of oil at the WTI delivery point of Cushing, Oklahoma to the U.S. Gulf Coast where refinery demand has been high. Stocks at Cushing have fallen to 46 million barrels from 52 million in January.
(Additional reporting by Peg Mackey in London, Manash Goswami in Singapore; Editing by Marguerita Choy and Bob Burgdorfer)