Brent steady, U.S. crude down ahead of contract expiry

By Barani Krishnan

NEW YORK (Reuters) - Brent oil futures settled steady on Thursday while U.S. crude fell ahead of the expiry of the front-month contract and continued pressure from large inventory builds.

A weaker dollar and stronger refining margins for gasoline, which could prompt refiners to turn more crude into the motor fuel, helped limit the downside in crude.

The dollar fell to a near one-week low against a basket of currencies (.DXY), making crude and other commodities denominated in the greenback more affordable for holders of currencies, such as the euro (EUR=).

U.S. gasoline futures (RBc1) rose more than 1 percent to above $1.28 a gallon after a report of delays in Irving Oil's restart of the gasoline-making unit at its 300,000-barrels-per-day refinery in St. John, New Brunswick.

Brent futures (LCOc1) settled up 4 cents at $44.18 a barrel, after hitting a low of $43.70 earlier in the session.

U.S. crude's West Texas Intermediate (WTI) futures (CLc1) settled down 21 cents at $40.54. It had earlier snapped below the key $40-a-barrel support for a second time since Wednesday.

"The dollar is certainly helping commodities today," said Scott Shelton, energy broker and commodities specialist at ICAP in Durham, North Carolina.

He also cited the widening U.S. refining premium, or crack, for gasoline, adding: "I'd be careful about being short gasoline."

The gasoline crack (CL-RB1=R) widened to more than $13.50 a barrel, the highest in 2-1/2 months.

While a global glut was weighing on crude in general, Brent's outlook on Thursday was less bearish compared with WTI, after data the previous day showed an eighth straight week of builds in U.S. crude stockpiles.

WTI's weakness has been also demonstrated by the growing discount between the front month to forward contracts as traders stored more crude in the hope of delivering at higher prices later.

On Thursday, the discount, or contango, for December WTI versus December 2016 WTI reached a record wide $8 a barrel.

On Wednesday, December WTI's contango to January 2016 hit a record high of $1.43, Reuters data showed.

December WTI expires on Friday, putting the market at further risk of testing August's sub-$40 lows.

"A return to the late August lows of about $37.75 still represents about a 90 percent probability," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

Goldman Sachs said there remained a downside risk to oil prices "as storage utilization continues to climb".

"We don't believe that current prices present an appealing entry point," the Wall Street bank added.

(Additional reporting by Simon Falush in London and Henning Gloystein in Singapore; Editing by Meredith Mazzilli and Marguerita Choy)