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Oil rallies as dollar dented, but oversupply in focus

Oil prices rose on Tuesday, helped by the dollar's first daily fall in a week.

[LONDON] Oil prices rose on Tuesday, helped by the dollar's first daily fall in a week, but were still facing their biggest monthly drop since March in the face of a global supply glut.

Expectations of more Iranian supply following a nuclear deal and concerns that economic worries in China and Europe will weigh on demand have put pressure on oil this month, stripping 11 per cent off the price of crude so far in July.

The dollar was down 0.5 per cent on Tuesday, having fallen for the first time in a week against a basket of currencies, but held just shy of three-month highs.

A rising dollar makes it more profitable for non-US investors to sell dollar-denominated assets. "Macroeconomically, the dollar is strongly bid as people are now pretty much convincned that the Fed will hike rates this year, whether that is in September or December," BNP Paribas analyst Harry Tchilinguirian said.

These expectations for the first US rate rise in almost a decade this year have pushed the dollar up 5 per cent over the last four weeks, pressuring oil.

US September crude futures, the new most-active contract, rose 87 cents on the day to US$51.31 a barrel. The front-month August contract, which expires later on Tuesday, dropped below US$50 on Monday for the first time since April and is down some US$9 a barrel for the month.

"US$50 is almost a faultline for bulls and bears to battle it out, but if you want to choke off US productoin, that price may have to move a bit lower. With 50 being that support level, this is where we will get some buying coming in," Mr Tchilinguirian added.

Brent September crude futures were up 75 cents on the day at US$57.38 a barrel by 1405 GMT, after settling down 45 cents on Monday. Brent has fallen in 10 of the last 12 months, making this its weakest period since 2008.

Last week, the International Energy Agency said it expected global oil demand growth to slow next year to 1.2 million barrels per day (bpd) from 1.4 million bpd this year - far less than needed to balance stubbornly growing supply, including the potential influx of Iranian crude.

Barclays' team of energy analysts said they believed the impact of additional supply from Iran, which has some 40 million barrels of oil in floating storage alone, might not be as severe as some have feared.