UPDATE 10-Oil rises, Brent/WTI spread narrows on Keystone news

Wed Oct 2, 2013 3:43pm EDT
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* TransCanada sees Keystone pipeline startup by year-end

* U.S. crude, gasoline stocks rise in past week -EIA

* Cushing oil stocks down for 13th successive week

* Coming up: U.S. initial jobless claims at 1230 GMT on Thursday

By Jeanine Prezioso

NEW YORK, Oct 2 (Reuters) - Crude oil prices ended with their largest gain in two weeks on Wednesday following news that TransCanada Corp's Keystone XL Gulf Coast pipeline would start up by the end of the year.

The news narrowed the premium for Brent oil futures over U.S. oil futures, known as West Texas Intermediate (WTI), to its smallest level in a week, briefly dropping below $5 a barrel.

The southern portion of TransCanada's 700,000 barrel per day crude pipeline was 95 percent complete and the company was focused on starting the line that will move crude from Cushing, Oklahoma, the delivery point for WTI futures, to the Gulf Coast refining center by the end of the year, a TransCanada spokesman said.

Traders who were holding long Brent oil positions and short positions on WTI were forced to buy the U.S. oil contract to cover bets once prices began to rise, which drove a further price spike, said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.   Continued...