UPDATE 9-Oil rises, Brent/WTI spread narrows on Keystone startup news
* TransCanada sees Keystone pipeline start up by end of year
* U.S. crude, gasoline stocks rise in past week -EIA
* Cushing oil stocks down for 13th successive week
* Coming up: U.S. initial jobless at 1230 GMT on Thursday
NEW YORK, Oct 2 (Reuters) - U.S. crude prices were headed for their largest gain in two weeks on Wednesday following news that TransCanada Corp's Keystone XL Gulf Coast pipeline would start up by the end of the year.
The news narrowed the premium for Brent oil futures over U.S. oil futures, known as West Texas Intermediate (WTI), to the narrowest level in a week, briefly dropping below $5 a barrel.
The southern portion of TransCanada's 700,000 barrel per day crude pipeline was 95 percent complete and the company was focused on starting the line that will move crude from Cushing, Oklahoma, the delivery point for WTI futures, to the Gulf Coast refining center by the end of the year, a TransCanada spokesman said.
Traders who were holding long Brent oil positions and short positions on WTI were forced to buy the U.S. oil contract to cover bets once prices began to rise, which drove a further price spike, said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
"Some people got caught wrong-footed on the pipeline announcement and got held to the fire," he said.
U.S. oil futures were $2.00 a barrel higher at $104.04 a barrel at 2:19 p.m. EDT (1819 GMT), after trading as high as $104.23. Brent gained $1.18 to $109.12.
U.S. crude was on track for a 1.9 percent gain, the largest daily percentage gain since Sept. 18.
Brent's premium over U.S. crude oil was trading at $5.08 per barrel, after narrowing to $4.99, its smallest in a week.
The spread has narrowed sharply from more than $23 a barrel in February as new capacity has come on stream to move crude out of Cushing, or divert it away from Cushing, to the Gulf Coast.
Over the past 13 weeks, crude inventories at the hub have fallen nearly 17 million barrels, according to data from the U.S. Energy Information Administration. Draws have been declining in recent weeks, with stockpiles at Cushing down just 59,000 barrels in the week to Sept. 27, the EIA reported on Wednesday.