(Adds Midland to Houston price differential)
By Devika Krishna Kumar and Collin Eaton
NEW YORK, Oct 19 (Reuters) - The upcoming startup of an expanded crude pipeline from the Permian Basin to Cushing, Oklahoma has rapidly strengthened oil prices in West Texas while weighing on futures as traders expect stockpiles to rise in Cushing, the delivery point for the benchmark contract.
Front-month U.S. West Texas Intermediate crude futures (WTI) traded at the biggest discount to the second month in nearly a year on Friday, slipping from a prolonged period of trading at a premium.
U.S. crude for delivery in November traded as much as 17 cents per barrel lower than futures for delivery in December CLc1-CLc2, the biggest discount since Nov. 20, 2017.
The spread slipped into contango, a structure where nearby prices trade lower than far-dated prices, on Thursday for the first time since May 22. Trading in the spread typically reflects supply and demand at Cushing.
The contango persists across the WTI forward curve through April/May, signaling traders expect oversupply at the storage hub for about six months.
A surge in production has trapped barrels in the Permian, the largest U.S. oilfield, as transportation bottlenecks emerged, depressing regional Midland prices for months.
However, the anticipated startup of Plains All American's expanded Sunrise Pipeline in early November is expected to significantly ease constraints.
The Sunrise extension will add about 500,000 barrels per day of capacity from Midland to Colorado City and Wichita Falls, Texas, and provide connections to Cushing.
"Sunrise running and ramping up more than anticipated so stronger Midland and weaker WTI," one trader at a merchant said.
WTI Midland's WTC-WTM discount to U.S. crude narrowed to as little as $2.50 per barrel on Thursday, the strongest differential in nearly seven months. WTI Midland sank to the widest in six years at a discount of as much as $18.25 per barrel in late August.
Traders said it is unlikely prices will flip to a premium, however, as production in the Permian is projected to continue to rise.
"But it's certainly getting close!" one trader said.
Midland crude traded at $9.50 below WTI at East Houston WTC-MEH, also called MEH, on Thursday, shrinking from as high as $23.75 in early September. Traders closely watch the spread to gauge the economics of transporting crude to the U.S. Gulf Coast.
The startup of the expanded Sunrise pipeline also comes at a time when Midwest refiners are wrapping up seasonal maintenance work.
Inventories at Cushing have risen for four straight weeks, according to the Energy Information Administration.
The weakness in U.S. crude pushed the spread between WTI and global benchmark Brent WTCLc1-LCOc1 to as much as $11 on Friday, the widest since early June. (Reporting by Devika Krishna Kumar in New York and Collin Eaton in Houston Editing by Marguerita Choy)