Oil drops towards $59 on stock build-up

Brent crude oil fell towards $59 a barrel on Monday as the dollar strengthened and a supply glut pushed global oil inventories to record highs.

The dollar hit an 11-year high against a basket of currencies after the US unemployment rate in February fell to its lowest level since May 2008, making commodities priced in the greenback more expensive for holders of other currencies.

Oil inventories are rising across the world as production outstrips demand, offsetting tensions in the Middle East and the risk of output cuts in Libya and Iraq.

Brent was down 35 cents at $59.38 a barrel by 1130 GMT. The North Sea crude oil futures contract fell 4.6 per cent last week in its biggest decline since the week ended January 9.

US crude was up five cents a barrel at $49.67. It closed down $1.15 on Friday, ending a third week of declines.

"More and more investors are coming to the conclusion that the market is awash with oil," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.

"Unprecedented stocks levels cannot be ignored forever." Goldman Sachs analysts argued in a note to clients that oil prices would reverse recent gains due to rising global inventories. They forecast US crude would drop to around $40 a barrel.