Oil slips, WTI leads decline as crude flows back to Cushing

Reuters Middle East

* Some Libya oil may return as ports reopen - reports

* U.S. crude, gasoline stocks decline - EIA

* Seaway pipeline "operating normally" - spokesman (Updates prices to settlement)

By Anna Louie Sussman

NEW YORK, Aug 21 (Reuters) - Global oil prices fell on Wednesday as heavier losses in U.S. crude widened the trans-Atlantic spread for a second day amid signs Libyan exports might resume and indications oil was flowing into the depleted Cushing storage hub.

The spread between Brent and West Texas Intermediate (WTI), the U.S. benchmark delivered at Cushing, Oklahoma, reached more than $6 a barrel, the widest since June. It has expanded by more than $3 since Tuesday, the biggest two-day move since early February, as traders bet that tightener Midwest supplies were easing.

Government data on Wednesday showed Cushing oil inventories were the lowest since March 2012, a 25 percent drop in seven weeks. But traders instead focused on news that an oil-by-rail pipeline was pumping oil back into local storage tanks for the first time in a year.

Industry intelligence group Genscape reported that the 90,000 barrel-per-day Hawthorn pipeline, which carries oil from a terminal in Stroud, Oklahoma, to Cushing, was preparing to restart for the first time since August 2012.

Brent futures for October fell 34 cents to settle at $109.81 a barrel. U.S. October oil fell $1.26 to $103.85 barrel, off a session low $103.50. The spread between the two stood at $5.96 at the close after earlier widening to $6.23.

Losses briefly increased after the minutes of the U.S. Federal Reserve's late July meeting showed it was considering measures to drain cash from the banking system when it shifts away from its current ultra-loose monetary policy.

The Brent/WTI spread also vacillated on Tuesday, when Genscape reported that the Seaway pipeline that carries crude oil from Cushing to the Texas coast had shut down. Operator Enterprise Products Partners LP said the line was "operating normally" by Wednesday morning.

LIBYA VOLATILE

About half of Libya's more than 1.2 million barrels per day (bpd) of crude oil export capacity is out of action because of strikes and civil unrest, but officials said on Tuesday that some ports have reopened and more shipments could restart within days.

Libya's Marsa al Brega port, which local sources said reopened on Tuesday, might handle oil cargoes in the next few days, a shipping source close to the trade said. The oil ministry said earlier this week that the Hariga port had reopened.

"The Libyan curtailment is still a wild card," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut. "The market is taking a wait-and-see approach to see if exports actually resume."

The situation in Libya is volatile with conflicting reports of port activity and varying estimates of oil exports.

The head of Libya's Petroleum Facilities Guard said on Tuesday that striking workers at a key oil port fired on civilians and injured at least one person. Independent confirmation of the shooting was not immediately available.

The political crisis in Egypt also stoked supply worries.

Egypt is home to the Suez Canal and the Sumed pipeline, which together carry around 4.5 million bpd of oil between the Red Sea and the Mediterranean. The Egyptian army has said it will guarantee the safety of the canal and pipeline but any disruption could have a major impact on oil prices. (Additional reporting by Jeanine Prezioso in New York, Peg Mackey and Christopher Johnson in London, Luke Pachymuthu in Singapore; Editing by Jonathan Leff and Andre Grenon)

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