×

UPDATE 8-Brent slumps, spread to U.S. crude narrows after rally

* IEA cuts 2011-1016 global oil demand growth

* Turkey-Syria tensions, lower N. Sea output support

* Brent/U.S. crude spread narrows from 2012 peak

* Coming up: CFTC positions data 3:30 p.m. EDT Friday

(Recasts, updates prices, market activity)

By Robert Gibbons

NEW YORK, Oct 12 (Reuters) - Oil prices fell on Friday and Brent crude's retreat outpaced U.S. crude's slide as investors took profits in the spread between the two futures contracts that had risen this week to its highest in a year.

The International Energy Agency's (IEA) prediction of a further decline in oil consumption and higher supplies weighed on oil prices that have received support from slowed North Sea production and fears of potential supply disruptions from the Middle East.

Brent and U.S. crude remained on track to post weekly gains of around 2 percent, as the turmoil in the Middle East, especially in Syria, continues to intensify.

Brent November crude

fell $1.45 to $114.26 a barrel by 12:48 p.m. EDT (1648 GMT), but remained on pace to post a weekly gain of more than 2 percent. Brent's November contract expires on Tuesday.

U.S. November crude

was down 55 cents at $91.52 a barrel. Friday's $91.43 to $92.64 trading range was within the previous session's range.

Brent's premium to U.S. crude

fell more than $1 intraday, dropping back under $23 a barrel after reaching $23.69 on Thursday, the highest since October 2011.

Brent's premium to U.S. crude benchmark West Texas Intermediate (WTI) rose more than $8 a barrel since falling to $15.57 a barrel on Sept. 19 as the European benchmark was squeezed by declining North Sea output.

Production from 12 North Sea streams is set to fall by about 1 percent in November.

The Brent/WTI spread narrowing was "reflecting possible profit-taking in the Brent-WTI spread after it earlier rose to its highest level in a year," Addison Armstrong, senior director at Tradition Energy, said in a note.

A cash crude trader said some investors in the spread play were booking profits ahead of the weekend, with so much uncertainty hovering over the market as the conflict in Syria intensifies and Europe grapples with its debt crisis.

Turkey scrambled two fighter planes to the border with Syria on Friday after a Syrian military helicopter bombed the Syrian border town of Azmarin.

Fighting along Turkey's border with Syria has repeatedly spilled over into Turkish territory in the past week.

The European Union (EU) provisionally approved new economic sanctions against Iran over Tehran's nuclear program on Friday, with senior diplomats giving their backing to measures against Iran's banking sector and industry.

The IEA said on Friday that Iran's oil production has fallen to the lowest in more than two decades, with the decline attributed to Western sanctions.

U.S. GASOLINE, HEATING OIL PULL BACK

U.S. gasoline and heating oil

futures fell, with gasoline retreating more than 2 percent and testing support below $2.8790 a gallon, its 100-day moving average, a technical level monitored by chart-watching traders and analysts.

Heating oil futures

fell more than 1 percent, but was retreating from a seven-month peak above $3.26 a gallon on Thursday.

U.S. distillate stocks, which include diesel and heating oil, fell by 3.2 million barrels last week, the Energy Information Administration reported, far more than expectations.

Total U.S. distillate inventories are now 33 percent below the level of last October as refinery closures and higher exports have cut into domestic supplies.

IEA CUTS DEMAND EXPECTATIONS

The IEA cut its global oil demand growth projection for 2011-2016 by 500,000 barrels per day (bpd) compared to its previous report, easing the pressure on OPEC to produce more oil.

The agency also cut its 2013 global oil demand projection by 100,000 bpd to 90.48 million bpd, citing lower consumption in Europe, the Americas and China.

"It seems like the market has reacted on the negative side. Crude oil prices reversed from yesterday's gains amid concerns over confirmation of the global oil demand growth," said Myrto Sokou, a senior research analyst at Sucden Financial.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on WTI-Brent spread

Graphic on 24-hr Brent chart analysis

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Additional reporting by Alice Baghdjian in London and Florence Tan in Singapore; Editing by David Gregorio and Sofina Mirza-Reid)

((robert.gibbons@thomsonreuters.com)(+1 646 223 6059)(Reuters Messaging: robert.gibbons.reuters.com@reuters.net))

Keywords: MARKETS OIL/