UPDATE 9-Oil rises nearly $2 to 2014 high on spread trade

Tue Jan 28, 2014 5:03pm EST
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* 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 (Reuters) - 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 point.

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."   Continued...