Oil falls as Fed rate hike speculation sends dollar surging

Wed May 18, 2016 3:42pm EDT
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By Barani Krishnan

NEW YORK (Reuters) - Oil prices retreated from 2016 highs and snapped a two-day rally on Wednesday, hurt by a surge in the dollar after the U.S. Federal Reserve signaled it could raise interest rates next month.

Brent and U.S. crude's West Texas Intermediate (WTI) futures had advanced closer to $50 a barrel on Wednesday after large gasoline and distillate drawdowns were announced by the U.S. Energy Information Administration (EIA).

But minutes from the Fed's April 26-27 policy meeting, released in late afternoon trading of oil, sent the dollar .DXY rallying against a basket of currencies and the crude benchmarks into negative territory. [FRX/]

The minutes showed the central bank was likely to raise rates in June if economic data pointed to stronger second-quarter growth and firmer inflation and employment.

"We think people really had a June rate hike off the table," said Tariq Zahir, crude trader and managing partner at Tyche Capital Advisors in New York. "But with the Fed disputing that, we could have a much stronger dollar from here, which is typically bearish for oil and other commodities."

Brent LCOc1 settled down 35 cents at $48.93 a barrel. Earlier, it came within 15 cents of striking the $50 target coveted by oil bulls. That session's peak of $49.85 was the highest for Brent since November.

WTI CLc1 closed down 12 cents at $48.19 a barrel after reaching $48.95 - its highest level since mid-October.

U.S. gasoline stockpiles USOILG=ECI fell by 2.5 million barrels last week, versus a draw of 150,000 barrels expected by analysts in a Reuters poll.   Continued...

A worker grabs a nozzle at a petrol station in Tehran, Iran January 25, 2016. REUTERS/Raheb Homavandi/TIMA