Oil falls towards $49 on high output, strong dollar

Oil prices fell more than 1 per cent on Tuesday as the dollar strengthened and investors anxious about crude oversupply, bracing for an expected weekly build in US stockpiles as Iran said it was on target to reach peak production.

Brent crude futures were up 2 cents and traded at $49.28 per barrel, while the US West Texas Intermediate (WTI) crude rose 9 cents at $47.07 a barrel, Reuters reported. The dollar was lifted greatly amid indications the Federal Reserve is gearing up to pursue an interest rate hike as early as September, in time for its next policy meeting.

Oil moved sharply lower in the hours before the start of trading in NY, but the downturn eased up somewhat by the opening bell.

“A freeze based on current maximum production levels, or somewhere near that, may not have too much practical impact on the market”, said Ric Spooner, chief analyst at CMC Markets in Sydney.

Crude oil prices rebounded and settled for a modestly high level on Tuesday after the dollar drifted below its two-week high.

A stronger greenback makes crude more expensive for holders of weaker currencies, denting demand.

USA crude stockpiles likely rose for a second straight week last week, building by 1.3 million barrels, a Reuters poll showed.

The expert added that the largest oil producer in OPEC – Saudi Arabia, where the structure of deposits differs from that in other countries, is not interested in oil price of $100 a barrel. Russia’s Gazprom (OGZPY) was down 0.3% and oil producer Rosneft (ROSN.Russia) was also lower.

Oil rallied with few stops from early August until mid last week after hints by Saudi Arabia and fellow members of the Organization of the Petroleum Exporting Countries that they may agree to an output freeze with non-OPEC oil producers at a meeting in Algeria on September 26-28.

It is expected that the talks on oil production freeze will be held between OPEC and non-OPEC countries.

Oil production estimates in the same time frame stood at around 8.5 million barrels per day (mbpd), while United States crude oil inventories increased by 2.5 mbpd for the week ending August19. Official data by the U.S. Energy Information Administration will be released later today. Al-Falih said he doesn’t “believe that an intervention of significance is required” and doesn’t support a production cut.

In morning trading Monday, prices were down about 1.7 per cent, to $46.82 at 11:36 a.m. ET.