Brent stays above $109; spread with WTI eyed

Florence Tan
Tuesday, 10 Dec 2013 | 10:12 PM ET

* Brent-WTI spread narrowest in nearly 5 weeks

* U.S. crude stockpiles fall 7.5 mln bbls last week - API

* Shell nears Ho-Ho pipeline flow reversal

* Coming up: EIA weekly oil inventories data; 1530 GMT

SINGAPORE, Dec 11 (Reuters) - Brent drifted above $109 a barrel on Wednesday as traders focused on the narrowing of its spread to U.S. futures ahead of U.S. inventories data that is forecast to show a drop in crude stockpiles.

Brent's premium to West Texas Intermediate (WTI) crude futures <CL-LCO1=R> has fallen nearly $8 since end-November, as changes in pipeline flows may ease a supply glut at WTI's delivery point in Cushing, Oklahoma, while nationwide crude inventories could fall for a second week.

January Brent crude edged down 12 cents to $109.26 a barrel by 0234 GMT after it closed down 1 cent on Tuesday.

U.S. crude futures for January delivery stayed near a 6-week high at $98.41, down 10 cents after a 1.2 percent rise the previous day.

"The spread has narrowed too quickly. I think the buying of WTI is overdone," Yusuke Seta, a commodity sales manager at Newedge Japan said, adding that crude inventories in the United States were still at the highest in a decade and production was increasing.

U.S. oil production hit its highest level in 25 years in November, reaching an average of 8 million barrels per day, the U.S. Energy Information Administration (EIA) said, although traders.

Two new pipelines are set to drain oil from Cushing in the next few months -- a 700,000 barrel-per-day (bpd) TransCanada Corp pipeline and a Royal Dutch Shell pipeline to send crude to Louisiana.

The reduction in crude stockpiles at Cushing will depend on whether or not the TransCanada pipeline operates smoothly and how well Gulf Coast refiners can absorb the supply from Shell's pipeline, Newedge's Seta said.

The EIA will release inventories data later on Wednesday that may show a second weekly drop in crude stockpiles.

Data from the American Petroleum Institute industry group showed on Tuesday that crude inventories fell by 7.5 million barrels in the week to Dec. 6. Analysts had expected a 3-million barrel drop in a Reuters poll.

Oil may gain support from falling OPEC output and as chaos in Libya continues to cloud the African nation's production outlook, although slowing demand growth in China, the world's largest net oil importer, capped gains.

Traders are also keeping an eye on the progress of talks between Tehran and six world powers over the implementation of a landmark nuclear deal that could ease sanctions on Iranian oil and increase supply.

(Reporting by Florence Tan; Editing by Richard Pullin)