Crude oil futures edge lower amid U.S. dollar rally

Investing.com - Crude oil futures edged lower on Tuesday, as the U.S. dollar rallied across the board amid expectations for higher U.S. interest rates later this year.

On the ICE Futures Exchange in London, Brent oil for July delivery dipped 33 cents, or 0.51%, to trade at $65.19 a barrel during European morning hours.

On Monday, Brent prices tacked on 15 cents, or 0.23%, to close at $65.52, as trade volumes were light with U.K. markets closed for a public holiday and markets in the U.S. remaining shut for the Memorial Day holiday.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.7% at 97.14 early Tuesday, the strongest level since April 27.

Dollar-denominated oil futures contracts tend to fall when the dollar rises, as this makes oil more expensive for buyers in other currencies.

The dollar strengthened broadly after Federal Reserve Chair Janet Yellen reiterated Friday that the central bank still expects to start raising interest rates later this year if the economy continues to improve as expected.

She also attributed a slowdown in first quarter growth to "transitory factors", including a harsh winter.

The greenback received an additional boost after data showed that underlying inflation in the U.S. rose for a third straight month in April, supporting the case for a rate hike later this year.

Meanwhile, the euro fell below the 1.09-level against the dollar as the prospect of a Greek default continued to weigh on sentiment.

Athens has warned that the country would be unable to make a €305 million payment to the International Monetary Fund due on June 5 if a cash-for-reforms deal with its international lenders is not reached by then.

Elsewhere, on the New York Mercantile Exchange, crude oil for July delivery shed 10 cents, or 0.18%, to trade at $59.61 a barrel, as concerns that U.S. shale production could rebound in the months ahead weighed.

According to industry research group Baker Hughes (NYSE:BHI), the number of rigs drilling for oil in the U.S. fell by only one last week to 659, marking the 24th straight week of declines.

Oil traders have been paying close attention to the shrinking rig count in recent months for signs it will eventually reduce the glut of crude flowing into the market.

However, the rate of decline has slowed in recent weeks, fuelling concerns that some shale oil companies will dial up their output in the months ahead if prices stabilize near current levels.