* Brent-WTI spread narrows to $10
* U.S. crude inventories rose 4.7 mln barrels -API
* U.S. distillates fell 1.8 mln barrels -API
* Coming up: EIA data Wednesday 10:30 a.m. EST (1530 GMT)
By Elizabeth Dilts and Jeanine Prezioso
NEW YORK, Jan 28 U.S. oil rose nearly $2 on
Tuesday, settling at its highest price this year and narrowing
its discount to European Brent, as traders expected data to show
supplies were draining from the contract's benchmark delivery
Market perception that the gradual startup of TransCanada
Corp's Keystone pipeline would move supplies from oil
hub Cushing, Oklahoma, where the U.S. crude oil contract is
priced, to the Gulf Coast, supported prices.
A lack of pipelines in the region has kept U.S. prices
depressed relative to Brent oil for the past three years.
"The Brent/WTI spread is contracting a bit more, and that
always helps crude prices," said Tariq Zahir, managing member of
commodity trading advisor Tyche Capital Advisors in New York.
"The market is expecting a little bit more of a draw at Cushing
since that pipeline has opened up. It's a volatile trade."
Brent oil also rose, but not as strongly, reversing losses
on Monday spurred by concerns over emerging markets and the
perception of a slowing economy in China.
Brent crude touched a high of $107.79 a barrel, up
$1.10, and then settled up 72 cents at $107.41 a barrel. On
Monday, Brent fell $1.19, its biggest loss since Jan. 2.
U.S. light crude oil touched a high of $97.66, up
$1.94, and settled $1.69 higher at $97.41, its highest
settlement since Dec. 31.
The spread between the two benchmarks narrowed by as much as
$1.20 to $9.77 on Tuesday before settling at $10.
Front-month U.S. ultra low-sulfur diesel futures (ULSD)
, commonly known as heating oil, settled 2.94 cents higher
at $3.1218 per gallon. It traded lower earlier in the session as
traders sold contracts to exit positions ahead of Friday's
expiration of the February contract.
Also lending support to the market was strong economic data
from the United States, the world's largest oil consumer.
Consumer confidence hit a five-month high in January and a key
index of house prices posted its largest year-over-year rise
since February 2006.
Those two pieces of data seemed to overshadow a poor durable
goods report, which showed orders for long-lasting U.S.
manufactured goods dropped 4.3 percent in December.
U.S. crude oil slightly pared gains after the American
Petroleum Institute reported crude inventories rose by 4.7
million barrels last week and stocks rose at Cushing.
Distillate inventories, including heating oil and diesel
fuel, fell by 1.8 million barrels as demand rose over a brutally
cold winter across much of North America.
Analysts, on average, expected distillate stocks, including
heating oil and diesel fuel, to fall by 2.2 million barrels,
while U.S. crude stocks likely rose by 2.3 million, according to
a Reuters poll.
The U.S. Energy Information Administration is expected to
release its data on Wednesday at 10:30 a.m. EST (1530 GMT).
Meanwhile, global equities markets steadied after three days
of intense selling, which also boosted oil prices.
Investors continued to watch the U.S. Federal Reserve as it
considers further tapering its bond-buying program. The central
bank is expected to announce a $10 billion cut to its asset
purchases in February at the conclusion of a two-day meeting on
A rollback would support the dollar, weighing on commodities
priced in the currency. Investors have been concerned
about the withdrawal of market-friendly U.S. monetary stimulus,
as well as unsettled conditions in emerging markets, which could
pressure oil prices lower.
In the world's second-largest oil consumer, China's factory
activity likely cooled in January to a six-month low, a Reuters
poll showed, underscoring views that an economic slowdown there
has continued into 2014.