Oil fell below $48 a barrel on Thursday, pressured by a stronger dollar and a surprise increase in U.S. crude inventories which served as a reminder that supplies are plentiful despite output problems.
Supply losses in Canada and Nigeria have supported the market. But cooler weather is expected to help firefighters battling Canadian wildfires and traders said Exxon Mobil is boosting output at Nigeria’s largest crude stream.
Brent crude LCOc1 was down $1.11 cents at $47.82 by 1330 GMT. It earlier fell to the day’s low of $47.46 after reaching a 2016 high of $49.85 on Wednesday, only to close lower. U.S. crude CLc1 was down $1.01 at $47.18.
“The main factor weighing on prices is the much appreciated U.S. dollar,” Carsten Fritsch, analyst at Commerzbank, said.
“What is more, rain forecast in the Canadian oil province of Alberta is giving rise to hopes that the devastating wildfires there could be brought under control.”
Oil and other commodities came under pressure from the dollar, which rose following publication of the minutes of the Federal Reserve’s latest policy meeting which rekindled expectations for an interest rate increase.
A stronger dollar makes commodities denominated in the U.S. currency more expensive for holders of other currencies and tends to weigh on oil prices.
Brent’s 2016 high on Wednesday was supported by the Canadian and Nigerian supply outages, but the rally ran out of steam after weekly data showed an unexpected 1.31-million-barrel rise in U.S. crude inventories.
“We feel that markets have moved too high, too far, too soon,” BNP Paribas said in a report. “We still face a large inventory overhang and for the most part, the outstanding supply outages – Canada and Nigeria – are reversible.”
Despite these outages and a drop in U.S. output as the near-halving of oil prices since mid-2014 has curbed investment by shale drillers, OPEC production is at its highest in years thanks in part to higher Iranian exports.
OPEC and non-members including Russia failed at an April 17 meeting to agree on an initiative to freeze output. OPEC meets on June 2 to set output policy and is not expected to decide on any measures to limit supplies.