Oil dips as dollar rallies on news of possible US rate hike

In early 2016, oil prices had nosedived to around $27 from above $100 a barrel two years ago because of sudden supply glut

Oil prices dipped in Asia on Monday after comments from the US central bank head implying that interest rates will rise. But traders are pinning their hopes on a tightening global market ahead of an OPEC meeting this week.

Federal Reserve Chair Janet Yellen on Friday said the US economy is improving enough to support an interest rate increase "probably in the coming months", raising the possibility of a rate hike in June or July.

The dollar was up against all major currencies as markets digested the news. A stronger greenback makes dollar-priced oil more expensive, denting demand and hurting prices.

In Canada, Suncor Energy Inc has restarted production which has been halted because of wildfires. The blaze forced evacuations and halted production of more than 1 million barrels a day.

At about 0240 GMT, North Sea Brent for July dipped 11 cents to $49.21 while US benchmark West Texas Intermediate for July delivery fell one cent to $49.32 a barrel.

Brent crude last Thursday topped $50 a barrel for the first time this year as production disruptions in Canada and Nigeria eased short-term concerns about abundant global supplies.

In early 2016, oil prices had nosedived to around $27 from above $100 a barrel two years ago, owing largely to a stubborn supply glut.

"The fact that crude prices are not below $49 means that there is still demand-buying in terms of crude futures. Maybe the investors are starting to be more optimistic about the path of oil," IG Markets analyst Bernard Aw told AFP.

"But because the dollar has gone up so much, trying to break above the fifty-dollar mark will be even more difficult now."

Traders are now looking to a 2 June meeting of the Organisation of the Petroleum Exporting Countries (OPEC) in Vienna where it is hoped that a deal on reducing production can be reached.

But after returning to world oil markets in January after the lifting of nuclear-linked Western sanctions, Iran has said it has no plans to join any output freeze by other major crude producers.

Talks in Doha involving OPEC members and other major producers such as Russia last month failed to reach a deal to cap production.