By Barani Krishnan
NEW YORK (Reuters) - Oil prices were down in volatile trading on Thursday afternoon as buying by funds positioned to keep the market at or around $40 a barrel pared most of the day's losses, traders said.
Prices fell more than $1 earlier in the session as refinery maintenance threatened to further raise record U.S. inventories of crude. The market was also pressured by talk that an OPEC production freeze meeting was unlikely without Iran's participation.
But with less than an hour to settlement in New York trade, Brent crude was down 72 cents at $40.35 a barrel, off the session low of $39.62.
U.S. crude on the New York Mercantile Exchange, or NYMEX, slid 19 cents to $38.10 per barrel, after an intraday low of $37.21.
"The funds have turned bullish and the market seems determined to stay at or around $40," said Pete Donovan, broker at Liquidity Energy in New York.
Another dealer concurred, saying "algos (are) now front running the NYMEX closing ramp". Algos refer to algorithmic trading models that can do massive transactions at a time.
Some traders said crude prices also pared losses as the dollar weakened. Oil buyers using the euro benefited from its rally after the European Central Bank (ECB) ruled out further rate cuts after bringing its key lending rate to zero.
(Additional reporting by Sarah McFarlane in LONDON and Henning Gloystein in SINGAPORE; Editing by Marguerita Choy and David Gregorio)