UPDATE 7-Oil pares losses on weakening dollar, refinery boost
* Libya unrest supports crude prices
* Brent/WTI spread narrows on refinery news
* U.S. crude higher for third week (Adds details, settlement prices)
NEW YORK May 10 (Reuters) - Brent and U.S. crude oil ended slightly down on Friday, after trading sharply lower for much of the session, rebounding as the U.S. dollar weakened and on late news reports that more oil would flow through BP Plc's Whiting, Indiana, refinery.
Earlier in the day, the euro had dropped to a one-month low against the dollar on expectations that the U.S. Federal Reserve would cut back on it monetary easing program.
But the dollar weakened toward the end of the day. The U.S. dollar index eased to 83.151 after reaching an earlier high of 83.438.
Crude oil prices are denominated in U.S. dollars, and when the value of the currency sinks, prices rise to offset the weakness.
"The dollar has given back a fairly decent portion of its gains," said Brian LaRose, technical analyst with United-ICAP in Jersey City.
Brent crude oil settled 56 cents lower at $103.91 per barrel after trading as low as $101.56.
U.S. crude oil futures ended the day 35 cents lower at $96.04 per barrel after trading more than $3 lower at $93.37.
This week marks the third weekly rise in U.S. crude oil prices.
An IIR Energy report that said BP would begin crude flows through its 240,000 barrel-per-day crude unit early next week at its Whiting, Indiana, refinery, also supported the market.
The unit will funnel more crude oil out of Cushing, Oklahoma, the delivery point for West Texas Intermediate and the benchmark for the New York Mercantile Exchange crude oil futures contract.
Market expectations that more crude oil will be funnelled to U.S. coastal refineries as pipeline capacity and some rail expansions take hold has boosted the price of U.S. crude, narrowing the spread between global benchmark Brent and WTI.
U.S. Energy Information Administration data on Wednesday showed that supplies at Cushing had been drawn down.
This prompted the spread between Brent and WTI CL-LCO1=R to narrow to its smallest point in more than two years, settling at $7.72. The spread narrowed on the BP news and settled at $7.87 on Friday.
Goldman Sachs in a report said it expects the spread to narrow further to as low as $5 in the third quarter as several pipeline projects come online to allow more production to reach U.S. Gulf Coast refineries.
Crude prices were also supported by reports of unrest in Libya.
Some traders began buying oil at the end of Friday's session not wanting to get caught short on the weekend after reports of bombs exploding outside two police stations in Libya's eastern city of Benghazi, brokers said.
(Additional reporting by Peg Mackey in London and Robert Gibbons in New York; editing by Gunna Dickson)
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