Brent flat, US crude down ahead of contract expiration

By Barani Krishnan

NEW YORK (Reuters) – Brent crude futures settled flat on Thursday as U.S. crude fell ahead of the expiration of the first-month contract and continued pressure from a strong build in inventories.

A weaker dollar and stronger refining margins for gasoline, which could prompt refiners to turn more crude oil into motor fuel, helped limit crude’s decline.

The dollar fell to a near one-week low against a basket of currencies <.DXY>making crude oil and other greenback-denominated commodities more affordable for holders of currencies such as the euro .

US Gasoline Futures rose more than 1 percent to more than $1.28 a gallon after a report on delays in Irving Oil restarting gasoline production at its 300,000-barrel-per-day refinery in St. John, New Brunswick.

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

Futures contracts U.S. West Texas Intermediate (WTI) crude was down 21 cents at $40.54. Earlier, it fell below the key support of $40 a barrel for the second time since Wednesday.

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

He also cited the expansion of the US refining premium, or crack, for gasoline, adding: “I would be careful to be short gasoline.”

Gasoline crack extended above $13.50 a barrel, the highest in 2-1/2 months.

While the global glut weighed on crude oil overall, Brent’s outlook on Thursday was less bearish compared to WTI, after the previous day’s data showed an eighth straight week of US crude stockpiles. (EIA/S)

WTI’s weakness was also shown by widening first-month discounting in forward contracts as traders stockpiled more crude oil in hopes of delivering later at higher prices.

On Thursday, the discount or contango for December WTI vs. WTI since December 2016 it has reached a record of 8 dollars per barrel.

Wednesday December WTI contango to January 2016 hit a record $1.43, Reuters data showed.

December WTI expires on Friday, putting the market at further risk of testing the August lows below $40.

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

Goldman Sachs said there remains a downside risk to oil prices “as storage utilization continues to increase.”

“We do not believe current prices present an attractive 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)