Oil down, heads for weekly loss on concern about glut

By Barani Krishnan

NEW YORK (Reuters) - Oil prices fell again on Friday, on track to a weekly loss, with Brent hitting two-month lows, as Iraqi crude exports looked likely to rise, adding to the global glut.

The dollar's rally to a more than four-month high also hurt demand for greenback-denominated oil among holders of the euro and other currencies.

Iraq's oil exports were expected to rise in July, according to loading data and an industry source. If confirmed, it would put OPEC's No. 2 producer back on track of supply growth after a two-month lag.

Earlier this week, the U.S. government reported that domestic crude inventories were at 519.5 million barrels last week, historically high for this time of year, even after a ninth straight week of drawdowns.

Traders said market intelligence firm Genscape reported a build of 725,176 barrels in the latest week at the Cushing, Oklahoma delivery point for U.S. crude futures.

"These large and increasing stocks will not only up the likelihood of additional commercial short hedges, but will also encourage the commercials to defer long hedges," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

The market awaits a weekly reading on the U.S. oil rig count at 1:00 p.m. EDT (1700 GMT). Drillers added rigs last week for a third week in a row.

"If we get a sizeable build in rigs today, there could be a long liquidation before the close," said Tariq Zahir, who trades time spreads in U.S. crude at New York's Tyche Capital Advisors.

Brent was down 83 cents, or 1.8 percent, at $45.37 a barrel by 12:33 p.m. EDT (1833 GMT). It hit a May 11 low of $45.26 earlier.

U.S. West Texas Intermediate (WTI) crude slid 82 cents, or 1.8 percent, to $43.93.

Both benchmarks were on track to a weekly loss of more than 4 percent.

Falling oil prices have encouraged traders to send U.S. supplies to Europe, counterbalancing 700,000 barrels per day in lost Nigerian supply..

U.S., European and Asian oil product stocks rose 2.35 million barrels last week for a second week of growth.

"The narrative of a balanced oil market (in the second half of 2016) has so far been an illusion," UBS oil analyst Giovanni Staunovo said.

Some market participants braced for volatile trading.

"Our view is that WTI will fall to $40 in the near term but rebound to $60 or even $70 by the year-end," said Salvatore Recco, who helps oversee about $2 billion of client money at Gravity Investments in Denver, Colorado.

(Additonal reporting by Libby George in LONDON and Keith Wallis in SINGAPORE; Editing by Marguerita Choy and David Gregorio)