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Oil prices drop on ample supply, strong dollar

By Robert Gibbons

NEW YORK (Reuters) – Oil futures fell and U.S. crude briefly slipped below $ 50 a barrel in choppy trading on Monday as ample supply, the prospect of more crude entering the market and the stronger dollar combined to pressure prices.

U.S. refined products futures also oscillated. An increasing supply of refined products, especially diesel fuel being offered by Saudi Arabia, helped push U.S. ultra-low diesel futures (HOc1) to multi-month lows intraday, adding to bearish concerns about prices in the oil futures complex.

Limiting crude futures’ losses were falling Saudi crude exports and last week’s industry data showing a lower U.S. oil rig count.

Brent September crude (LCOc1) was down 53 cents at $ 56.57 a barrel at 2:02 p.m. EDT (1602 GMT), having swung from $ 56.45 to $ 57.44.

U.S. August crude (CLc1) was down 74 cents at $ 50.15, having fallen to $ 49.92, its first time below $ 50 since April. The August contract expires on Tuesday.

“The dollar moved up again and the market focus is back on supply and the prospect for more Iranian exports after last week’s agreement with the West over Iran’s nuclear programme,” said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

The seesawing dollar jumped early to three-month highs (.DXY) on expectations of rising U.S. interest rates, sending gold prices to their lowest in five years and helping pressure copper prices to near two-week lows. [MKTS/GLOB] [MET/L]

A stronger dollar makes crude more expensive for investors using other currencies and rising U.S. interest rates are expected to curb liquidity, possibly adding to price pressures on crude oil.

U.S. drillers cut seven oil rigs last week following two weeks of increases, a report by oil services company Baker Hughes Inc (BHI.N) said on Friday.

However, as refineries around the world operate at near-maximum levels to benefit from strong profit margins, there are signs a glut in the crude oil market may be shifting to refined products.

“The big fall in U.S. rig counts since last September has not had a negative impact on domestic production and the reduction in Saudi crude oil exports is due to domestic refinery demand as the Kingdom is turning into a significant product exporter,” analysts at PVM wrote.

Refined product inventories at Europe’s Amsterdam-Rotterdam-Antwerp storage hub rose to an all-time record last week. [ARA/]

Strong increases in refinery operations in recent months are set to slow in the second half of this year, hitting demand for crude oil, Vienna-based consultancy JBC Energy said.

(Additional reporting by Ron Bousso in London and Jacob Gronholt-Pedersen; Editing by Dale Hudson and Meredith Mazzilli)

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