Oil futures drop on stronger dollar, U.S. supply data ahead

Investing.com - Crude oil futures declined on Tuesday, as market participants looked ahead to fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of demand in the world’s largest oil consumer.

On the New York Mercantile Exchange, crude oil for July delivery fell 63 cents, or 1.05%, to trade at $59.61 a barrel during European morning hours. Prices held in a range between $59.60 and $60.49.

A day earlier, Nymex oil shed 30 cents, or 0.5%, to end at $60.24. New York-traded oil futures hit a five-month peak of $63.61 on May 6.

The American Petroleum Institute will release its inventories report later in the day, while Wednesday’s government report could show crude stockpiles fell by 2.1 million barrels in the week ended May 15.

U.S. oil futures have been well-supported in recent weeks as an ongoing collapse in rigs drilling for oil in the U.S. added to expectations that shale oil production has peaked and may start falling in the coming months.

According to industry research group Baker Hughes (NYSE:BHI), the number of rigs drilling for oil in the U.S. fell by 8 last week to 660, the 23rd straight week of declines and the lowest level since September 2010.

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.

But market analysts also warned that the recent rally in the oil market could prompt some producers to dial up their output if prices hold above more than $60 a barrel.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for July delivery declined 70 cents, or 1.06%, to trade at $65.57 a barrel. On Monday, Brent prices lost 54 cents, or 0.81%, to close at $66.27. London-traded Brent futures rallied to a five-month high of $70.36 on May 6.

The spread between the Brent and the WTI crude contracts stood at $5.96 a barrel early on Tuesday, compared to $6.03 by close of trade on Monday.

Meanwhile, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.85% to hit 95.03, moving off last week's four-month low of 93.16.

Market players looked ahead to Wednesday’s minutes of the Federal Reserve’s April meeting, as well as U.S. inflation data on Friday, for fresh indications on the strength of the economy and the timing of a U.S. rate increase.

Recent economic reports have indicated that the economy has slowed since the start of the year, prompting many investors to push back expectations on the timing of an initial rate hike by the Fed.