U.S. and Brent crude futures headed in opposite directions on Wednesday, jostled by a plan to reverse the Seaway pipeline by next year to help ease an oil glut at the Cushing, Oklahoma, delivery hub.
News of the plan boosted U.S. crude prices to a five-month high above $102 a barrel and narrowed the spread between Brent and West Texas Intermediate, the U.S. benchmark, to its lowest level since March.
The plan announced by Canada's Enbridge Inc and Enterprise Products Partners, owners of the 350,000 barrels per day (bpd) Seaway pipeline would send crude locked at Cushing to the higher priced markets along the Texas Coast.
Rival TransCanada Corp, meanwhile, said it planned to build a Cushing-to-Gulf-Coast pipeline spur of its proposed Keystone XL pipeline by early next year. pending consultations with the U.S. State Department.
Both proposals, if they materialized, were seen helping unclog a bottleneck that has pressured crude prices in the U.S. Midwest for about a year.
"There will be easy money selling crude to other markets, so the supply to Cushing should fall, which is why WTI is gaining," said Simon Wardell at Global Insight.
By 1:50 p.m. EST (1850 GMT), Brent crude for January delivery was down 57 cents at $111.61 a barrel, having fallen as low as $110.14 earlier.
U.S. January crude traded at $102.32, up $2.89, narrowing the transatlantic arbitrage to $9.29. Brent's premium over WTI earlier fell to $8.30, the lowest since March 24, down from an intraday record of $28.10 on Oct. 14.
The premium has been on a slide recently also due in part to the speedy return of supplies from Libya to markets in Europe, after having been shut down due to months of a civil war that toppled Muammar Gaddafi.
U.S. December crude, which expires on Friday, traded up $2.95 to $102.32, after jumping to a session high $102.46, the highest since June 1.
"I think everyone is having a bit of a party here," Carl Larry, president of Oil Outlooks, said about the pipeline reversal.
"We are going to see WTI make some strong moves well above $100" he said, while adding that enthusiasm might be a bit exaggerated as refiners in the Gulf may not be able to process all volumes of light WTI crude.
SUPPORTIVE U.S. DATA
Economic and weekly petroleum inventory data also helped lift U.S. crude futures.
U.S. industrial output rebounded and consumer prices fell in October for the first time in four months, taking pressure off strapped households and giving the Federal Reserve more room to ease monetary policy.
Domestic crude stockpiles fell 1.1 million barrels, down for a second straight week, while distillates supplies, which include heating oil and diesel fuel, dropped for the seventh consecutive week, by 2.1 million barrels.
In Europe, the picture was much gloomier as France and Germany, Europe's two central powers, clashed over whether the European Central Bank should intervene to halt the accelerating debt crisis.
The euro fell to a five-week low against the dollar and yen as rising French and Italian borrowing costs heightened concerns about contagion in the euro zone debt crisis.
"There's a focus on sovereign debt yields; they are still a concern and they are driving prices," said Olivier Jakob at Petromatrix in Zug, Switzerland.
Also highlighting the bearish outlook for developed economies, the Bank of England said Britain was on the brink of a contraction as the euro crisis weighs heavily, and inflation would fall well below
(Additional reporting from Robert Gibbons in New York; Simon Falush and Dmitry Zhdannikov in London; Editing by Marguerita Choy)