Oil down as dollar surges; Nigeria oil terminal issue pares loss

By Barani Krishnan

NEW YORK (Reuters) - Oil prices tumbled on Thursday as U.S. rate hike expectations lifted the dollar, but crude pared losses on worries about more supply outages from Nigeria's main crude oil terminal.

Growing expectations that the U.S. Federal Reserve may raise rates next month prompted investors to cash out of long positions in Brent and U.S. crude's West Texas Intermediate (WTI) futures. Those positions came into the money after oil rallied on Monday and Tuesday on worries about supply outages.

By Thursday afternoon, Brent and WTI were sharply off session lows after the Qua Iboe crude oil terminal, Nigeria's largest which typically exports more than 300,000 barrels per day, was reported closed due to militants' threats.

Workers of at the terminal, operated by ExxonMobil, have been evacuated and its tanks have been emptied, said the report, quoting traders.

An ExxonMobil spokesman later clarified that production was still "ongoing" at the terminal, although business was disrupted earlier on Thursday by "criminal" activity early.

"The report on the Nigerian terminal closure was being passed around, and had possibly helped crude prices come off their lows," said Scott Shelton, broker with ICAP in Durham, North Carolina.

Brent futures' front-month contract, July, was down 60 cents, or 1.2 percent, at $48.33 a barrel by 12:52 p.m. EDT (1652 GMT). It had fallen as much as $1.55, or more than 3 percent, during the session low to $47.38.

WTI's June contract, which expires as front-month at Thursday's settlement, was down 51 cents, or 1 percent, at $47.68 a barrel. It had fallen to $46.73 earlier.

Oil tumbled in early trade, extending losses from the previous session that followed release of the Fed's April policy meeting minutes that fed expectations of a June rate hike. On Thursday, New York Fed President William Dudley said the central bank was on track for a June or July rate increase.

The dollar index, measured against a basket of currencies, surged to its highest in nearly two months, making greenback-denominated oil less expensive for holders of the euro and other currencies.

Some analysts said the soaring dollar would probably slow the recovery in crude prices, but not stop it. Brent is up from $27 in January and WTI has rebounded from $26 levels in February.

"We feel that the adjusted Fed stance is capable of extracting about $2 a barrel from potential WTI and Brent highs," said Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates.

(Additional reporting by Alex Lawler in LONDON; Editing by Marguerita Choy)