Oil prices slip on dollar rally, ample supply

Reuters

Published May 19, 2015 10:06AM ET

Oil prices slip on dollar rally, ample supply

By Christopher Johnson

LONDON (Reuters) - Brent crude oil fell below $66 a barrel on Tuesday as the dollar strengthened and on evidence of ample supplies of Middle Eastern oil despite wars in northern Iraq, Syria and Yemen.

The dollar rose to almost a one-week high against a basket of currencies, recovering from a four-month low and making oil and other commodities more expensive for consumers in non-dollar economies. [FRX/]

Crude rallied on Monday on worries Middle Eastern oil supplies could hit by escalating fighting in the region, but data suggest production from the Gulf is increasing.

"The oil market is generally oversupplied with high Saudi exports and OPEC is unlikely to cut production," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.

"The dollar is also weighing on the market," he added.

Brent for July LCOc1 fell $1.30 to a low of $64.97 a barrel before recovering to around $65.05 by 1355 GMT. U.S. light crude oil CLc1 was down $1.10 at $58.33 a barrel.

Saudi Arabia's crude exports hit their highest in almost a decade in March, official data showed on Monday, as the top oil exporter increased output to record levels.

The kingdom shipped 7.898 million barrels per day (bpd) of crude in March, up from 7.350 million bpd in February, Joint Organisations Data Initiative (JODI) data showed.

Oil Minister Ali al-Naimi has said Saudi Arabia pumped 10.3 million bpd of crude in March - above its previous record production of 10.2 million bpd in August 2013.

Goldman Sachs (NYSE:GS) analysts forecast on Tuesday that U.S. crude would fall back to the low seen earlier this year close to $45, weighed down by both "hydrocarbon and capital surpluses":

"We ... forecast prices will retrace to their lows by October," Goldman Sachs said in a report.

Analysts said investors 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 which seized the city of Ramadi.

Saudi-led forces have resumed military operations in Yemen after a ceasefire despite appeals by the United Nations for time to allow humanitarian supplies into the country.

"Fears that fighting in Iraq and Yemen could hamper the oil supply have clearly given way to a more sober appraisal," said Carsten Fritsch, analyst at Commerzbank (XETRA:CBKG).