London, UK | – Oil settled slightly lower in choppy trade on Tuesday as a surging dollar and anticipation of higher U.S. crude stockpiles offset optimism about planned OPEC output cuts that initially took Brent to four-month highs.
A slump in equity prices on Wall Street also weighed on oil.
Brent crude settled down 2 cents at $50.87 a barrel, after rising earlier to $51.37, its highest since June 10.
U.S. West Texas Intermediate (WTI) crude closed down 12 cents at $48.69. At the session high, it hit $49.13, its highest since July 5.
The dollar rose to 13-day highs on bets the Federal Reserve would raise U.S. interest rates by December. This weighed on crude and other greenback-denominated commodities. ”I shorted WTI at $48.50 and I’ll short it again at $50,” said Phil Davis, trader at PSW Investments in Woodland Park, New Jersey. “This rally’s going to fade in a week or two as U.S. crude stocks go higher and macro pressure from the dollar builds.”
U.S. crude stocks likely rose by 2.6 million barrels last week, after four unexpected weeks of drawdowns, a Reuters poll showed. The American Petroleum Institute, a trade group, will report preliminary stockpiles data at 4:30 p.m. EDT (2030 GMT) before the U.S. government posts official numbers on Wednesday.
Notwithstanding Tuesday’s drop, oil is still up 10 per cent over the past five sessions since the Organisation of the Petroleum Exporting Countries revived expectations that it would limit output at its policy meeting in Vienna on Nov. 30.
“The OPEC deal looks more and more like hot air but oil’s still very technically driven,” said Stig Rasmussen, senior proprietary trader at Danske Commodities in Aarhus, Denmark.
Rasmussen’s next upside target for Brent was $52.86. “I imagine at that point, shale oil companies will be hedging bigger volumes for 1-2 years ahead.”
U.S. shale producers were hedging future oil output at their highest levels this year, analysts at Morgan Stanley noted, as the calendar 2017 strip for crude hit mid-August highs of $52.29 on Tuesday.
OPEC’s target is to bring its production to between 32.5 million and 33.0 million barrels per day by cutting some 700,000 bpd from a glut of about 1.0 million-1.5 million bpd estimated by analysts. The group has invited Russia and other major producers to join in making cuts.
A Reuters survey last week showed OPEC output likely hit record highs of 33.6 million bpd in September.