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UPDATE 7-U.S. oil futures edge up, Brent/WTI spread narrows

Jeanine Prezioso
Friday, 25 Oct 2013 | 11:41 AM ET

* U.S. oil set to post biggest weekly fall since June

* U.S. non-transport durable goods orders fall in Sept

NEW YORK, Oct 25 (Reuters) - U.S. oil futures rose for a second day on Friday while European Brent crude dipped, tightening the transatlantic spread as traders bet that increasing refinery operations and a major new Midwest pipeline would keep rising inventories in check.

Brent was pressured by news that Scotland's Grangemouth refinery, which provides power for a major oil pipeline, will remain open, keeping streams of the North Sea crude that underpins the Brent contract flowing.

"It seems as if that situation in Scotland has resolved itself and you're witnessing profit taking in the Brent/WTI spread," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut.

U.S gasoline futures also succumbed to selling pressure, after gaining sharply in the previous session on news of a refinery closure. Traders sold crack spreads as supplies of the fuel remain high, some brokers said.

U.S. crude oil was up 37 cents at $97.48 by 11:23 a.m. EDT (1506 GMT) amid choppy trading. It was on track to fall around 3.5 percent on the week, its biggest weekly loss since June. Brent crude for December was down 27 cents a barrel to $106.72, falling for a third day.

Brent's premium over U.S. oil narrowed by as much as 85 cents to trade at a low of $9.03. The spread was last trading at $9.13 per barrel.

Gasoline futures fell 1.59 cents or 0.6 percent to $2.5727 a gallon.

U.S. crude oil prices have been depressed by a seasonal dip in demand and increasing domestic oil production that has boosted stockpiles, particularly on the U.S. Gulf coast. Signs of growing inventories pushed the Brent/WTI spread to a near seven-month low of more than $13 a barrel earlier this week.

But many traders said the move had been an overreaction, and were instead focusing on refineries returning from maintenance and the startup of TransCanada's MarketLink pipeline to the Gulf, which is due to begin filling the line next month, that will drain supplies from oil hub Cushing, Oklahoma.

Economic data reflecting a slowdown from the fallout of the partial government shutdown kept a lid on prices. A durable goods report showed new orders outside of transportation equipment fell in September in a possible sign companies were holding back on investments due to uncertainty over government spending.

In the European oil market, Brent oil was also pressured lower on higher output from several producers in the Middle East and North Africa, analysts said.

"Balances are not as tight as we, or the market, had expected," said Virendra Chauhan, oil analyst at London-based consultancy Energy Aspects.

"The worst of this year's supply shortfalls is now behind us, with maintenance at non-OPEC fields largely complete and some of the lost OPEC production also coming back in Libya, Nigeria and Iraq," Chauhan added.