Oil prices fall as dollar hits 14-year high

By Christopher Johnson

LONDON (Reuters) - Oil prices fell on Thursday as the dollar rallied in the wake of a rise in U.S. interest rates, despite forecasts of a tighter oil market in 2017 due to planned output cuts.

The dollar hit a 14-year high against a basket of other currencies after the U.S. Federal Reserve raised rates for the first time in a year and hinted rates could rise faster than investors had anticipated in 2017.

A stronger dollar, in which oil is traded, tends to hit demand for crude as it makes fuel purchases more expensive for users of other currencies.

U.S. light crude oil fell $1.09 a barrel to a low of $49.95 before recovering slightly to trade around $50.00 by 1405 GMT. North Sea Brent crude oil was down 70 cents at $53.20 a barrel.

"We got sold off because of the strong dollar, but any weakness should be temporary," said Tamas Varga, senior market analyst at brokerage PVM Oil Associates in London. "The market has faith in the OPEC/non-OPEC deal."

The Organization of the Petroleum Exporting Countries and other producers led by Russia have promised to cut output by almost 1.8 million barrels per day (bpd) to try to clear global oversupply that has depressed prices for more than two years.

ANZ bank said on Thursday that oil markets would move into a substantial deficit in the first quarter of 2017 if OPEC and other producers reduced output as promised.

"This will likely push oil prices well above $60 per barrel early next year," ANZ analysts said in a note to clients.

Oil companies have slashed costs to survive the low price environment, industry data show.

"2017 will be the third year investments go down, with 3 percent (declines). You need to go back to the '80s to see three consecutive years of investment cuts," said Audun Martinsen, vice president for Oilfield Service Research at Rystad Energy.

Crude prices received some support from reports of falling U.S. crude inventories.

U.S. Energy Information Administration (EIA) data showed that commercial crude inventories declined by 2.56 million barrels last week to 483.19 million barrels.

(Addition reporting by Henning Gloystein and Keith Wallis in Singapore; Editing by Jason Neely and David Clarke)