Oil eases as dollar rises, U.S. inventories expected to swell

By Amanda Cooper

LONDON (Reuters) - Oil prices eased on Wednesday, under pressure from a recovery in the value of the dollar from last week's three-year lows and from an expected rise in U.S. crude production.

Brent crude futures were last down 13 cents at $65.12 a barrel by 1505 GMT, while West Texas Intermediate (WTI) crude futures fell 28 cents to $61.51 a barrel.

The premium of Brent over WTI widened to almost $3.60 a barrel, having neared its narrowest in six months on Tuesday as concern about a bottleneck of Canadian crude imports underpinned U.S. futures.

"A sense of harmony has returned this morning with both crude benchmarks ploughing a southerly furrow as the dollar gains further ground," PVM Oil Associates analyst Stephen Brennock said.

The dollar rose against other major currencies, buoyed by the rise in short-term U.S. government bond yields their highest in over nine years and ahead of the release of the minutes of the Federal Reserve's most recent policy-setting meeting, which may signal the pace of any interest rate rises.

"We all hate to talk about the dollar rather than about oil, but the dollar is currently a trading reality and we can’t ignore its price influence," Petromatrix strategist Olivier Jakob said.

"In that regard...today we will have to watch the release of the FOMC minutes for the influence they can have on the dollar."

U.S. inventory data, due tomorrow, is expected to show a rise of 1.3 million barrels in crude stocks in the week to Feb. 16, according to a Reuters poll.

The Organization of the Petroleum Exporting Countries and other producers, including Russia, will discuss extending their existing cooperation for many more years when they meet in June as they seek to avoid major market shocks, the United Arab Emirates' energy minister told Reuters on Tuesday.

The group has agreed to cut crude output by 1.8 million bpd throughout this year to force global inventories to drain.

Futures prices have also been dented by the physical markets, which are showing signs of seasonal weakness, given that most of the world's refineries close, either partially or wholly, to conduct maintenance at this time of year and cut their crude intake as a result.

Differentials, or prices for physical barrels, have slid on both sides of the Atlantic and it is the cheaper sour, or more sulphurous, grades that have borne the brunt of the declines.

Prices for North Sea barrels on Tuesday recovered after hitting their lowest levels since mid-2017, as an overhang of surplus oil has materialised.

Light, sweet West African grades have proven to be the most resilient in the Atlantic basin, thanks in large part to demand from China, but Mediterranean crudes, including Russian Urals, have slid since the start of the year.

(Additional reporting by Henning Gloystein in SINGAPORE; Editing by Louise Heavens and Elaine Hardcastle)