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* U.S. crude hits 9-month high
* U.S. September-October crude spread widens to record high
* Brent-WTI spread falls to narrowest since January 2011
* Coming up: API weekly oil data; 2030 GMT (Updates prices, changes byline, dateline (pvs LONDON)
By Anna Louie Sussman
NEW YORK, July 2 (Reuters) - U.S. crude jumped on Tuesday,hitting a nine-month high above $99 a barrel, as turmoil in theMiddle East unsettled investors while signs of tightening supplyin the U.S. Midwest strengthened prompt U.S. crude pricesrelative to other contracts.
The spread between European Brent and U.S. WTI crude forSeptember narrowed to near $4 a barrel, the lowest since early2011, as some traders rushed to cover short bets. Goldman Sachs closed its trade recommendation after the spreadcollapsed from over $23 in February to its target of $5.
U.S. inter-month spreads stretched to the highest in years,with the Sept/Oct WTI spread
The dramatic strengthening at the front end of the U.S.crude oil curve has been tied to the restart last month of BP's revamped 413,000 barrel-per-day Whiting refinery, whichis expected to help absorb more Canadian crude oil supplies thatmight otherwise fill up tanks at Cushing, Oklahoma, the deliverypoint for the U.S. oil futures contract.
"It reflects expectations that (supplies) are going to bemuch tighter in the third quarter," said Addison Armstrong,director of market research at Tradition Energy in Stamford,Connecticut.
"Refinery runs are very high, and they've got room to runhigher."
Oil also got a boost from turmoil in the strife-riddenMiddle East, where Libyan oil output has fallen by a third afterprotesters shut several oilfields and anti-governmentdemonstrations in Egypt have raised concerns about the stabilityof the whole region.
Brent crude futures for August delivery were up 58cents at $103.58 a barrel by 12:03 p.m. EDT (1603 GMT) afterrising 0.8 percent the previous day.
U.S. crude futures for August were 96 cents higher at$98.95 per barrel after earlier hitting $99.17, its highestsince Sept. 2012.
Traders and brokers also said that market players who wereshort September versus October were getting squeezed.
"Right now there are a large number of market participantswho play the short spread trade getting squeezed on SeptemberWTI. This move in Brent-WTI caught a lot of people unaware,"said a hedge fund manager active in the energy space.
New pipeline and rail capacity has come online in recentmonths to alleviate the glut of crude at Cushing that has builtup as more production from U.S. shale and Canadian oil sandscomes into the region, and many players expect drawdowns at theoil hub to grow, supporting U.S. oil prices relative to Brent.
"Over 2 million barrels per day (bpd) of global refinerycapacity will return by late July on top of the 2.5 million bpdthat has returned over the past four weeks, providing ampleopportunity for runs to rise," Morgan Stanley said in a note.
Prices were also supported by data on Monday from theInstitute for Supply Management that showed U.S. manufacturingactivity grew in June and a bullish U.S. equity market.
(Additional reporting by Robert Campbell in New York, SimonFalush in London and Florence Tan in Singapore; Editing byJonathan Leff and David Gregorio)
