Oil slumps to 4-week low as dollar firms up, U.S. supply data ahead

Investing.com - West Texas Intermediate oil futures reversed earlier gains to hit a fresh four-week low on Thursday, as the U.S. dollar firmed after earlier losses amid growing expectations for higher interest rates in the U.S. this year.

On the New York Mercantile Exchange, crude oil for July delivery hit an intraday low of $56.83 a barrel, the weakest level since April 29, before trading at $56.97 during U.S. morning hours, down 54 cents, or 0.94%.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.25% at 97.58, close to Wednesday's five-week highs of 97.88.

The U.S. Department of Labor said earlier that the number of individuals filing for initial jobless benefits last week rose by 7,000 to 282,000 from the previous week’s total of 275,000. Analysts had expected initial jobless claims to fall by 5,000 to 270,000 last week.

The data did little to alter the view that the Federal Reserve would raise interest rates after the summer.

Economic data released in the past week, including reports on inflation, new home sales, business investment and consumer confidence all indicated that the economy is gaining momentum after a slowdown in the first quarter, supporting the case for higher interest rates later this year.

Market participants now 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.

Thursday's government report was expected to show that U.S. crude oil stockpiles fell by 0.9 million barrels last week, while gasoline stockpiles were forecast to decrease by 0.5 million barrels.

The report comes out one day later than usual due to the Memorial Day holiday in the U.S. on Monday.

After markets closed Wednesday, the American Petroleum Institute, an industry group, said that U.S. crude inventories rose by 1.3 million barrels in the week ended May 22, the first increase in four weeks.

U.S. oil futures have been under pressure in recent sessions amid indications that the sharp decline in U.S. drilling activity in recent months may be nearing an end.

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.

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.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for July delivery lost 47 cents, or 0.75%, to trade at $61.60 a barrel after touching a daily low of $61.47, a level not seen since April 15.

London-traded Brent prices have been weighed by record OPEC production in recent sessions. The Organization of Petroleum Exporting Counties is expected to keep production levels unchanged when it meets on June 5, despite ongoing concerns over ample global supplies.

The spread between the Brent and the WTI crude contracts stood at $4.63 a barrel early on Thursday, compared to $4.55 by close of trade on Wednesday.

Meanwhile, in the currency market, the dollar rose to 124.30 against the yen, the most since June 2002, boosted by expectations that the economic recovery in the U.S. would accelerate the timeline for higher interest rates.

The euro gave up earlier gains to trade near a one-month low against the greenback after European officials played down suggestions of a deal between Greece and its creditors, saying negotiators still had much work to do before reaching an agreement.