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Oil falls below US$63 as dollar strengthens

[LONDON] Crude oil futures reversed early gains to fall below US$63 a barrel on Wednesday as the dollar's recovery from early losses outweighed expectations of a draw on US oil stocks.

July Brent crude fell 83 cents to US$62.89 a barrel by 1347 GMT, down from an intraday high of US$64.67, while US crude was down 21 cents at US$57.82 after touching US$58.95 earlier in the session.

Oil prices had fallen nearly 3 per cent the previous day, pressured by a strong rally in the dollar.

A weaker US dollar makes dollar-backed commodities such as crude oil more attractive for holders of other currencies.

The dollar was up 0.34 per cent against a basket of currencies, recovering from a fall of 0.33 per cent.

"We are hostages a little bit to the swings in the currency markets," said Ole Hansen, head of commodity strategy at Saxo Bank.

US commercial crude inventories are expected to have fallen by 2 million barrels last week, a preliminary Reuters survey showed. Declining US stockpiles of crude and oil products in past weeks indicate robust demand in the world's largest oil consumer, supporting prices.

The American Petroleum Institute will release its data on Wednesday at 2030 GMT, delayed by one day because of the US Memorial Day holiday on Monday. The US government's Energy Information Administration will publish its own data at 1500 GMT on Thursday.

"If global demand continues to surprise to the upside and diesel somehow manages to hold value, then crude can surge," Energy Aspects analysts said in a note.

However, investors have started taking profits on Brent as hedge funds and money managers cut their bets on rising prices for a second straight week.

"Further unwinding of these positions would remove a key pillar of support to prices," BMI Research analysts said in a note.

Investors also remained wary of ample supply as top Opec producers Saudi Arabia and Iraq kept exports near record levels. The Organization of the Petroleum Exporting Countries (Opec) is expected to keep production steady at its meeting on June 5.

"I am not so bullish on fundamentals," said one bank trader who declined to be identified because of company policy. "Brent could possibly go down to US$60 on profit-taking."