U.S. cash crudes lower after oil futures rally

NEW YORK, Oct (KOSDAQ: 039200.KQ - news) 2 (Reuters) - U.S. cash crude differentials fell broadly on Wednesday following a rally in oil futures after TransCanada Corp (Toronto: TRP.TO - news) said the southern leg of its Keystone XL oil pipeline will be completed by the end of the year.

Construction of the pipeline, which will carry up to 700,000 barrels per day (bpd) of oil from Cushing, Oklahoma, to Nederland, Texas, is nearly 95 percent complete, TransCanada said.

The announcement narrowed international Brent's premium over U.S. crude since it will take barrels away from the delivery point for U.S. crude futures and traders had a delay until the first quarter of 2014.

Brent's premium over U.S. crude (CL-LCO1=R) initially fell below $5 a barrel, its lowest level in a week, but stood at $5.09 a barrel at settlement.

Separately, traders were watching a low-pressure system hovering over the northwestern Caribbean Sea, which has a 70 percent chance of becoming a tropical cyclone in the next 48 hours, according to the U.S. National Hurricane Center.

The system is expected to hit the eastern sections of the oil and gas producing region in the Gulf of Mexico, said Jerry Paul, a meteorologist with Thomson Reuters Weather Insight.

BP Plc (LSE: BP.L - news) said it has begun securing offshore facilities and rigs and is evacuating "non-essential" staff from its Thunder Horse, Na Kika, Atlantis and Mad Dog platforms in the Gulf of Mexico, which are in the storm's direct path.

In the cash market, Light Louisiana Sweet (LLS-) for November (Xetra: A0Z24E - news) delivery rose 55 cents in early trading to $3.65 a barrel over the benchmark front-month futures contract but later fell back to $3.10 a barrel over futures, flat to Tuesday levels.

Large volume of selling continued on Midland grades Wednesday with November West Texas Intermediate crude (WTM-) trading at 80 cents and then 95 cents under futures, compared with 65 cents under on Tuesday.

West Texas Sour (WTS-) fell 20 cents to trade at $2.00 a barrel under the front-month contract.

Mars sour (MRS-) was slightly lower at $1.80 a barrel under futures, after trading earlier at $1.40 and $1.45 under futures.

Thunder Horse crude was bid at 40 cents over futures and offered at $1.00 over futures, with no trades recorded.

In the futures market, U.S. crude rose $2.06 a barrel to settle at $104.10, its largest percentage gain in two weeks. Brent settled at $109.19, up $1.25 a barrel.

KEYSTONE STARTUP

A TransCanada spokesman declined to say what percentage of the Keystone southern leg pipeline's capacity has been committed to shippers but said the line was "overwhelmingly subscribed."

Other sources offered a different forecast. Cash crude traders expect the contracted volumes on the pipeline to be from 450,000 to 500,000 bpd, "well below commitment levels for any new pipeline project," Morgan Stanley (Xetra: 885836 - news) said in a note.

The bank said it expects the pipeline to carry 350,000 bpd to the Gulf Coast.

The line's startup, along with other pipeline projects like Seaway, is expected to oversupply the U.S. Gulf Coast region.

"WTI is going to rush to the U.S. Gulf Coast like teen girls to Justin Bieber," said Carl Larry, president of Houston-based consultancy Oil Outlooks and Opinions.

(Reporting by Selam Gebrekidan; editing by Jim Marshall)