The spread between Brent and U.S. crude oil futures narrowed sharply in the last half hour of trade on Wednesday fueled by expectations for increased capacity to funnel rising U.S. crude oil production out of benchmark-supply-point Cushing.
The spread between U.S. crude oil and Brent settled at $7.72, the lowest settlement since late January 2011.
Oil stocks at Cushing, Oklahoma, fell by 652,000 barrels to 49.15 million in the latest week, U.S. Energy Information Administration (EIA) data released on Wednesday showed.
The perception and expectation that further capacity could bring a flood of crude out of Cushing and into U.S. refineries drove U.S. prices higher, tightening the differential between the U.S. benchmark and Brent for much of the trading session.
A flood of volume at the end of the session pushed U.S. crude oil futures up $1 per barrel higher to settle at $96.62, after it traded mostly 30-50 cents higher during Wednesday's session.
"People bid the market on the draw in Cushing," said Stephen Schork, editor of The Schork Report in Pennsylvania.
But the sharp action was seen at the end of the session when a chunk of volume was pushed through.
BP Plc is expected to begin the start-up of an upgraded crude distillation unit at its 405,000 barrel-per-day Whiting, Indiana, refinery at the end of May.
Last month, traders speculated that a report showing an increase in oil shipments on a pipeline from Cushing into the Whiting refinery was a sign that new units were set to restart.
This was also linked to a narrowing in the Brent/WTI spread.
Brent crude oil futures settled 6 cents lower at $104.34 per barrel, after trading as low as $103.53 during the session.
Brent prices were weakened by mixed economic data. China's daily crude imports in April rose 3.7 percent from a year ago and 3.5 percent compared to March, but EIA data on Tuesday left a lacklustre outlook for demand.
In its monthly Short-Term Energy Outlook, the EIA cut its forecast for demand growth this year to 890,000 barrels per day (bpd), a reduction of 70,000 bpd from last month's forecast, and reduced its 2014 estimate by 120,000 bpd to 1.21 million bpd.
Imports and exports from China, the world's second largest oil consumer, grew more than expected in April from a year ago, but the accuracy of the data was called into question.
"I have no strong conviction whether the data reflects reality. We'll focus on next Monday's activities data," said Zhiwei Zhang, chief China economist at Nomura in Hong Kong.
A stronger stock market lent some support to oil markets, lifting equities and commodities prices alike.
The Dow Jones unofficially closed above 15,000 points for a second day after setting a record on Tuesday. (Editing by Alden Bentley)