* Rebound in European demand, increased US production towiden spread
* Weak European demand in Q1 contributed to lower dieselexports
* Marathon expects to run cheap US crude at Galveston Bayrefinery
By Kristen Hays
HOUSTON, April 30 (Reuters) - Marathon Petroleum Corp expects the narrowed spread between U.S. crude benchmarkWest Texas Intermediate and London's Brent crude to widen again,though not necessarily to the $20-plus level seen earlier thisyear, company executives said on Tuesday.
That spread, which surpassed $20 in February but has droppedbelow $10, has been a boon for refiners like Marathon withmultiple plants in the U.S. Midwest that are in close proximityto cheaper U.S. inland and Canadian heavy crudes output.
On Tuesday, the spread between Brent and U.S.crude settled at less than $9 for the first time since Decemberof 2011, and down from over $23 in February 2013. The spreadmoved between $10 and $13 for most of April.
Gary Heminger, chief executive of Marathon Petroleum, toldReuters in an interview that Europe's weak economy and a heavyrefinery turnaround season depressed demand, pushing down Brentprices.
As those turnarounds wrap up, demand for Brent is expectedto rise, pushing prices up relative to WTI, he said.
In addition, he said crude stocks at the U.S. crude futureshub in Cushing, Oklahoma, remain high at 51 million barrels, andthat inventory will decline to some degree as pipeline projectsincreasingly come online and help relieve that glut.
Those include the startup this month of Magellan MidstreamPartners' reversed Longhorn Pipeline, and SunocoLogistics Partners LP upcoming startup of the firstphase of its Permian Express West Texas-Nederland crude pipelineproject. Both aim to move WestTexas crude to Houston or southeast Texas that otherwise wouldbe bound for Cushing.
Enterprise Products Partners' and Enbridge Inc's expanded Seaway Pipeline also is moving crude fromCushing to the Texas Gulf Coast.
But even with those projects and others, Heminger noted thatU.S. production is expected to keep growing, particularly inTexas, North Dakota and the Gulf of Mexico as companies addinfrastructure to move crude to refineries.
"We think you'll see the spread widen back out," Hemingersaid.
Weaker European demand contributed to lower diesel exports,as did competition from Motiva Enterprises' 600,000barrels-per-day (bpd) refinery in Port Arthur, Texas, MikePalmer, senior vice president of supply, distribution andplanning, told analysts.
The company exported 121,000 barrels per day of diesel inthe first quarter, down from 151,000 bpd in the fourth quarterof 2012.
"The market will dictate to us how much we actually export,"Palmer said. "We continue to expect that exports are going to bea very important part of our business and we are very positiveabout exports going forward."
The company's 451,000 bpd Galveston Bay refinery in TexasCity is part of that optimism for exports. Marathon closed onits $2.4 billion purchase of the refinery from BP Plc inFebruary, and executives said they are formulating crude slatesthere.
Palmer said the refinery, which helped push the company'squarterly earnings up by 22 percent, has not yet run as muchWTI-priced crude as Marathon's other six plants.
He said Marathon sees value in running foreign sweet cargocrudes, which is related to the aromatics business at therefinery. But the company is working to optimize its crudeslate, and the Longhorn and Permian Express pipelines will helpbring in those cheaper crudes.
"As domestic crude continues to grow, we expect that we aregoing to see that crude run by this plant," Palmer said.