NEW YORK: Brent crude dropped sharply just before the session close on Wednesday after reports of the imminent restart of a key US refinery depressed the international benchmark's premium to US oil.
Oil had traded higher for much of the day following data showing a steep drawdown in US crude inventories last week.
Shortly after 2 p.m. EDT (1800 GMT), Brent tumbled to a low of $102.85 a barrel after IIR Energy reported that BP Plc would start a 260,000-barrels-per-day crude unit at its 410,000-bpd refinery in Whiting, Indiana, on Thursday.
BP's BP1 pipeline runs from Cushing, Oklahoma, the delivery point of West Texas Intermediate (WTI) and the basis for the US benchmark crude futures contract, to its Whiting plant.
Traders took this to mean there would be an increase in demand for WTI relative to Brent since the refinery will likely source crude domestically rather than pull imports from the Gulf Coast.
Crude imports have been in decline and sank to their lowest since late December, US government data showed on Wednesday.
"If the refinery here is going online they'll be out in the market being a buyer of domestic crude," said Michael Korn, president of commodity brokerage Skokie Energy in Princeton, New Jersey.
"The thinking would be bullish for WTI relative to Brent because there would be an associated increase for WTI."
The news narrowed Brent's premium to WTI by some 70 cents to a low of $9.11 per barrel from earlier in the session.
The spread settled at $9.30.
Sources at BP's refinery said its crude distillation unit would not be ready for start-up in the next few days and is not expected to return to production before the end of June.
Brent futures settled 20 cents lower at $103.04 per barrel, after trading as high as $104.07, the contract's first run above $104 in five sessions.
US crude futures settled 43 cents higher at $93.74 per barrel, after trading as high as $94.48.
Earlier in the day, US crude rose more than $1 per barrel after weekly data from the US Energy Information Administration showed more than 6 million barrels were drained from crude stockpiles and imports declined.
In earlier trading, Brent was also pushed higher after South Korea's sweetened incentives for non-Middle East crude oil imports heightened demand prospects.
Brent's premium to Middle East benchmark Dubai rose to the highest in more than two weeks following the development.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>*
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