By Paddy Gourlay 
   Of Dow Jones Newswires 
 

LONDON (Dow Jones)--Nearby U.S. crude futures are rallying Friday morning as traders scramble to cover short positions after a pipeline leak raised the likelihood of further stock draws.

But European crude futures are little changed in the morning session, although trading volumes have picked up after a quiet start.

At 1045 GMT, the front-month October Brent contract on London's ICE futures exchange is 20 cents higher at $77.67 a barrel. Around 40,500 lots have changed hands in the contract, while another 48,500 have traded in the November contract

Meanwhile, the front-month October light, sweet crude contract on the New York Mercantile Exchange, called West Texas Intermediate, is trading $1.60 higher at $75.85 a barrel.

Around 60,000 lots have traded so far, while another 54,000 have changed hands in the November Contract. Around half of the volume traded before 0700 GMT as traders covered short positions following late news Thursday of a leak at a Canadian pipeline, called Enbridge 6a, which carries around 670,000 barrels of crude from Canada to the U.S. mid-west.

"It is not the first time that there been a leak on a pipeline and in the past it never took too long for the repairs to be done," said Olivier Jakob, analyst at Petromatrix. "However, the Deepwater Horizon incident has added an additional risk premium as the EPA is now more under the spotlight and this brings the risk that the downtimes for repairs are more lengthy than in the past."

The closure will likely increase stockdraws at Cushing, Okla., the delivery point for WTI, where crude stocks fell 218,000 barrels for the week ended Sept. 4, according to the U.S. Department of Energy Thursday.

Overall, U.S. crude stockpiles fell 1.853 million barrels, mainly because refinery utilization rates increased 1.2% to 88.2%, and crude imports fell almost 800,000 barrels a day.

But WTI had also become detached from the rest of the oil curve recently, and was due a correction after five consecutive weekly stockdraws at Cushing.

After Fridays' rally, the October/November WTI timespread has narrowed more than 50 cents, but still remains a wide $1 a barrel. In contrast, the October/November Brent timespread is trading around 8 cents a barrel.

Meanwhile, the ICE's gasoil contract for October delivery is $5.25 lower at $661 a metric ton, while Nymex gasoline for October delivery is 2.25 cents lower at 195.79 cents a gallon.

-By Paddy Gourlay, Dow Jones Newswires, +44 (0)20-7842-9364; patrick.gourlay@dowjones.com

(END) Dow Jones Newswires

September 10, 2010 07:06 ET (11:06 GMT)

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