Oil down over 3 percent on dollar rally, ample supply worry

Oil down over 3 percent on dollar rally, ample supply worry

By Barani Krishnan

NEW YORK (Reuters) - Oil prices fell more than 3 percent on Tuesday, with U.S. crude extending losses for a fifth straight day, as the dollar rallied amid evidence that the United States and top oil exporter Saudi Arabia were pumping more than the world needed.

North Sea Brent and U.S. crude settled down more than $2 a barrel each as the dollar hit two-week highs against a basket of currencies <.DXY>, making crude and other dollar-denominated commodities less affordable for holders of currencies such as the euro. [FRX/]

The sell-off in oil came ahead of Tuesday's end-of-business expiry in U.S. crude's front-month contract, which often results in unusually heavier market activity. Volume in U.S. crude's July contract , the new front-month from Wednesday, was markedly higher than the expiring June contract , Reuters data showed.

The market also tumbled despite an industry report scheduled later in the day that was expected to cite a third straight weekly decline in U.S. crude stockpiles. [EIA/S]

The American Petroleum Institute (API) report is due at 4:30 p.m. EDT (2030 GMT), ahead of official inventory numbers on Wednesday from the U.S. government's Energy Information Administration.

"There is certainly a degree of profit-taking going on today before the expiry of the June contract, but it's primarily driven by the dollar's strength," said Sal Umek of the Energy Management Institute in New York.

"Regardless what the API and EIA say, we are nearly 90 million barrels higher in U.S. crude, and about 14 million higher in gasoline, from a year ago, putting us well above the five-year average," Umek said.

Brent fell $2.25 to $64.02 a barrel while U.S. crude's front-month contract settled down $2.17 at $57.26.

Goldman Sachs said it expects the current oil rally, which began at the end of the first quarter, to fizzle and U.S. crude futures to trade near the year's low at around $45 by October.

Saudi Arabia's crude exports hit their highest level in almost a decade in March, official data showed on Monday..

Analysts said investors also were less worried over the risks to Middle East oil supplies from fighting in Iraq, where Shi'ite militiamen have been deployed to battle Islamic State militants who seized the city of Ramadi. Saudi-led forces are meanwhile carrying out strikes in Yemen against Houthi rebels aligned to Iran.

"Such concerns are exaggerated," said Carsten Fritsch, analyst at Commerzbank. "In actual fact, the oil supply from the region has continued to grow."

 

(Additional reporting by Christopher Johnson in London and Henning Gloystein in Singapore; Editing by Dale Hudson, David Evans, Marguerita Choy and Paul Simao)