UPDATE 7-U.S. oil drops as stockpile grows; Brent spread holds
* U.S. EIA reports big rise in U.S. crude stocks
* Brent/U.S. crude spread widens to more than $13
* U.S. crude falls to lowest since July 1
* China's crude stocks also rise in September
NEW YORK, Oct 23 (Reuters) - U.S. oil prices fell 1.5 percent on Wednesday, extending one of the year's sharpest sell-offs, after government data showed a surprisingly large increase in crude supplies.
Including Wednesday's decline, the market has dropped more than 5 percent in five sessions pulling U.S. crude below $97 a barrel for the first time since July. But European Brent crude fell even more, narrowing the heavily-traded Brent-WTI spread, which had gapped to more than $13, the widest in six months.
Total U.S. oil inventories rose more than 5 million barrels in the week to Oct. 18, near double market estimates, while stockpiles at Cushing, Oklahoma, grew for the second time in as many weeks, government data showed. Refinery run rates have dropped by some 6.6 percent in the last six weeks due to seasonal maintenance, curbing crude demand for the moment.
"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, analyst with Tradition Energy in Stamford, Connecticut.
U.S. crude for December delivery fell $1.50 to $96.80 at 12:42 p.m. (1742 GMT), paring some losses from an earlier drop to $96.16, its lowest since July 1. U.S. crude has lost nearly $4 per barrel in the last five sessions, heading for its largest five-day percentage loss in six months.
Brent crude fell $1.73 to $108.24 a barrel. Brent oil fell below both the 100-and-200 day moving averages for the first time since Oct. 2.
Despite the declines, the Brent-WTI spread narrowed for the first time in four sessions, suggesting that the $3.50 move that pushed Brent's premium over U.S. crude to more than $13 a barrel for the first time since April had been exaggerated. The spread was last trading at $11.41, 26 cents narrower than Tuesday's settlement.
The spread ballooned from as little as $5 earlier this year as traders responded to unexpected signs of rising Cushing oil stocks and pipeline glitches.
"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 $3."
Refinery input last week was virtually flat, but overall down some 1.3 million barrels since the week of Sept. 13, while crude oil inventories have increased by more than 24 million barrels, Energy Information Administration data showed.
Stocks at Cushing grew by 358,000 barrels, the EIA said on Wednesday.
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 also lent some 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 shut its petrochemical plant and threaten to close the adjoining refinery.