Oil market tumbles further

(iStock)
(iStock)

London - Oil prices dived again on Monday on a pick-up in drilling and a strong dollar, as speculation swirled that the Federal Reserve could hike interest rates as soon as this month.

Around 13:30, US benchmark West Texas Intermediate (WTI) for delivery in October was down $1.09 at $44.79 a barrel.

Brent North Sea crude for November delivery slid $1.02 to $46.99 compared with the close on Friday.

Prices fell in tandem with world stock markets, which have been pummelled by the prospect of a potential US interest rate hike in September.

Oil prices had already plunged Friday, wiping out the previous day's rally as analysts said a sharp fall in US inventories last week was likely a one-off caused by import cutbacks as Hurricane Hermine ploughed through the Gulf of Mexico.

Remarks from two top Fed officials Friday backing a lift in borrowing costs also dragged on the market as the dollar rallied, making crude more expensive for anyone holding weaker currencies.

"Commodities are ... sensitive to changing rate hike expectations and have been quite volatile at the start of the week, with gold, silver and oil down," said analyst Craig Erlam at trading firm Oanda.

"A stronger dollar which often comes with an increasing rate hike probability is bearish for commodities as it makes them more expensive to holders of other currencies."

News that oil firms had opened up more rigs to drill fuelled expectations US output would increase, at a time when demand is weak and supply remains plentiful.

"Oil extended its losses from Friday into Monday, following increased drilling in the US alongside a continued glut in supply across the market," added analyst Wayne Heap at British-based broker Love Energy.

Traders are awaiting a meeting this month of key producer Russia and the OPEC exporters club to address a global supply glut and overproduction crisis that has battered prices for the past two years.

However, while there have been soothing words from officials, analysts are sceptical that any deal will be struck at the gathering in Algiers.

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