* Market ends down 1 pct after earlier fall of 3 percent
* Data shows Cushing build on week to Apr 5 despite Keystone
* Iraqi oil exports trending higher in April than in March (New throughout, updates prices, market activity and comments to settlement as market pares losses)
By Barani Krishnan
NEW YORK, April 7 (Reuters) - Oil settled lower on Thursday after data showed higher weekly inventories at the U.S. crude storage base despite a pipeline outage, but prices pared losses on short-covering, suggesting more volatility ahead.
"The energy trade remains choppy amidst fundamental and macroeconomic cross-currents that are shifting daily," Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates said in a note.
Brent futures settled down 41 cents, or about 1 percent, at $39.43 a barrel, retracing losses from the session low that saw Brent down more than $1, or nearly 3 percent.
U.S. crude futures finished down 49 cents at $37.26, after tumbling as low as $36.69.
Prices fell after market intelligence firm Genscape reported a build of 255,804 barrels at the Cushing, Oklahoma delivery hub for U.S. crude futures in the week to Tuesday.
The build came even though TransCanada Corp had shut since Saturday its 590,000 barrels per day (bpd) Keystone crude pipeline that moves crude to Cushing and Illinois. The shutdown was ordered after the company feared a potential pipeline leak.
While Genscape did note a 481,485-barrel decline at Cushing in the five days to Tuesday, potentially from the Keystone outage, that was not enough to offset total inflows for the week.
"I guess people were expecting even more impact from the Keystone closure," said a trader.
Crude prices were also pressured by data showing oil exports from Iraq's southern ports at an average of 3.494 million bpd since the start of April, versus 3.286 million bpd in March.
Even so, as settlement approached, investors covered short positions and Brent and U.S. crude futures retraced more than half their early losses.
Some attributed that to investor optimism that aside from Cushing, the overall supply-demand situation in U.S. crude is becoming more balanced. A U.S. government report on Wednesday showed a net draw of nearly 5 million barrels in domestic crude stockpiles last week.
"This lower move today sets us up for a strong day tomorrow, before the weekend," said Mark Scullion, broker at New York's Eclipse International. "It's what you call the 'Friday Hedge'."
Ritterbusch projects choppy price action of between $35.00 and $38.30 in U.S. crude futures next week if the dollar weakens further from the Federal Reserve's downplaying of U.S. rate hike expectations. (Additional reporting by Simon Falush in LONDON; Editing by Bernadette Baum and David Gregorio)