Oil futures up, on pace for first monthly rise since June

NEW YORK (Reuters) - Crude oil rose on Friday with Brent and U.S. futures on pace to post their first monthly gains since June, supported by an improving demand outlook and supply outages.

Both Brent and U.S. futures briefly pared gains after data from oil services company Baker Hughes showed its U.S. oil drilling rig count fell only 33 to 986 this week, after rigs were only down 37 in the previous week.

Front-month March New York ultra-low sulfur diesel (ULSD) futures had already pared gains after surging more than 7 percent as March ULSD and RBOB headed to contract expirations on Friday.

Brent April crude was up $1.27 at $61.32 a barrel at 1:28 p.m. EST (1828 GMT), on pace to post a 15 percent monthly gain, the first since June and biggest in percentage terms since May 2009.

U.S. April crude was up 63 cents at $48.80 a barrel, needing a finish above $48.24 to post a February gain.

The U.S. crude contract's gains have been curbed by rising crude oil inventories in the United States, up 8.4 million barrels last week, according to government data. [EIA/S]

Oil has been supported by signs that lower prices are starting to reduce investment in non-OPEC production, even as the U.S. rig count slide slows.

Brent's more pronounced gains this month have been fueled by disruptions to production and exports from Libya and Iraq.

"The main event this week has been the widening of the spread between Brent and WTI (U.S. crude)," Ole Hansen, senior commodity strategist at Saxo Bank, said.

The spread between Brent and U.S. crude widened to $12.85 a barrel on Friday, the highest Brent premium since January 2014.

Brent also received support from strong U.S. refined products futures approaching expiration for March contracts.

"Cold weather and refinery problems and tight supplies on the East Coast have helped make the ULSD contract the most sensitive part of the oil sector," said Robert Yawger, director for energy futures at Mizuho Securities USA in New York.

March ULSD was up 5.04 cents at $2.1862 a gallon, after reaching $2.3144, a 2015 high and the highest since November.

March RBOB gasoline was up 4.34 cents at $1.7510 a gallon, leaving it at a 20-cent deficit to April.

Both products headed for monthly gains.

(Additional reporting by Claire Milhench in London and Jane Xie in Singapore; editing by Dale Hudson, Marguerita Choy and Diane Craft)

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