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Oil drops on dollar strength and OPEC+ supply expectations

Oil prices fell on Friday as a collapse in bond prices led to gains in the U.S. dollar while crude supply is expected to rise in repsonse to prices back above pre-pandemic levels.

Brent crude futures for April, which expire on Friday, fell 55 cents, or 0.8%, to $66.33 a barrel by 1033 GMT. The more actively traded May contract slipped 61 cents to $65.50, having earlier dropped as low as $65.04.

U.S. West Texas Intermediate (WTI) crude futures dropped 58 cents, or 0.9%, to $62.95 a barrel.

A sell-off in bond markets lifted the U.S. dollar, making dollar-priced oil more expensive for holders of other currencies.

Despite Friday’s price declines, both Brent and WTI are on track for monthly gains of about 20% on supply disruptions in the United States and optimism over demand recovery on the back of COVID-19 vaccination programmes.

Investors are betting that next week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies, a group known as OPEC+, will result in more supply returning to the market.

“The originally planned (easing of cuts) would mean an increase in supply of 2.25 million bpd vs March levels,” HSBC said in a note.

“We think market fundamentals could probably just about absorb such an amount in Q2 – if demand recovers enough – but an announcement of an immediate increase on this scale would risk spooking the market badly.”

U.S. crude prices also face pressure from the loss of refinery demand after several Gulf Coast facilities were shuttered during the winter storm last week.

Refining capacity of about 4 million barrels per day (bpd) is still shut and it could take until March 5 for all shut capacity to resume, though there is risk of delays, analysts at J.P. Morgan said in a note this week.
Source: Reuters (Additional reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore; Editing by David Goodman)

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