Oil Prices Down as Oversupply Worries Continue

Oil prices fell Monday as the U.S. dollar rose and the energy market's focus shifted back to the global oversupply of crude.

Light, sweet crude for July, the U.S. benchmark, was down 82 cents, or 1.4%, at $59.14 a barrel on the New York Mercantile Exchange. The global Brent crude contract for July was down $1, or 1.6%, at $63.64 a barrel on the ICE Futures Europe exchange.

"The fact remains that supply is continuing to outstrip demand," analyst Dominick Chirichella of the Energy Management Institute said in a note. "It is very difficult to see how the massive oversupply situation is going to reverse in the short to medium term."

Globally, analysts said Saudi Arabia was talking of increasing production and Libya could also soon raise output, while Iraq is pumping at near-record levels, contributing to swelling supplies. Talks to resolve a diplomatic stalemate with Iran were continuing, leading up to a June 30 deadline, with the potential to eventually release at least another 500,000 barrels a day onto world markets. Analysts say global supplies continue to mount at a rate of around 2 million barrels a day.

In the U.S., a closely watched but loose gauge of production, the number of rigs deployed to drill for oil, fell for the 27th consecutive week and is now 60% below year-ago levels. But the U.S. Energy Information Administration's estimate of production continues to rise, edging up 24,000 barrels last week to 9.6 million barrels a day---nearly 14% higher than a year ago and the highest level in more than four decades.

Oil benchmarks have rallied off their lows set in late March, but the recovery has lost steam, with prices trading in a narrow range around $60 a barrel since early May. Prices are up nearly 40% from their low set earlier this year but a far cry from the $100-a-barrel range that dominated for the past several years. Though financial investors remain positioned for a rising market overall, regulatory data shows they edged back from bullish positions in both contracts by 3% or more last week.

Meanwhile, the dollar strengthened as concerns about Greek solvency carried on. A stronger dollar can weigh on oil as it becomes more expensive for traders using non-U.S. currency.

"Although several bearish items appear to be at work in prompting selling, we are prioritizing a strengthening dollar as the main negative influence," research consultancy Ritterbusch & Associates said in a note.

In refined products, gasoline futures were down 1% at $2.10 a gallon on the Nymex and diesel futures were down 1.5% at $1.86 a gallon.

By Christian Berthelsen