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Oil extends drop as unexpected stockpile gain expands US glut

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Oil extended its decline for a second day as US crude stockpiles unexpectedly increased, keeping supplies at the most in more than eight decades.

[HONG KONG] Oil extended its decline for a second day as US crude stockpiles unexpectedly increased, keeping supplies at the most in more than eight decades.

Futures slid as much as 0.8 per cent in New York after falling from the highest level in seven months on Wednesday amid a surging US currency. Inventories increased by 1.3 million barrels last week, according to government data. Rain in Canada may slow fires that have shifted back toward oil-sands operations.

The Bloomberg Dollar Spot Index rose after the Federal Reserve published minutes of its latest monetary policy suggesting a June hike is possible.

Crude has surged more than 80 per cent since slumping to the lowest in 12 years earlier this year on signs the global glut will ease as US output declines.

Opec's strategy to defend market share is working, Kuwait's acting oil minister said in an interview Wednesday and the market moved into a deficit earlier than expected, according to Goldman Sachs Group Inc.

"While the demand-supply outlook has improved, oil has had a very substantial rise and we are getting toward the stage where high inventories and producer hedging are probably likely to cap the rally," Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone.

"The sharply higher US dollar has seen momentum steady."

West Texas Intermediate for June delivery, which expires Friday, fell as much as 36 US cents to US$47.83 a barrel on the New York Mercantile Exchange and was at US$47.92 at 8:25 am Hong Kong time.

Total volume traded was about 49 per cent below the 100-day average. The more-active July contract slid as much as 38 US cents to US$48.40.

Brent for July settlement lost as much as 39 US cents, or 0.8 per cent, to US$48.54 a barrel on the London-based ICE Futures Europe exchange. The contract fell 35 US cents to close at US$48.93 on Wednesday. The global benchmark crude traded at a premium of eight US cents to WTI for July.

BLOOMBERG