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Oil drifts as dollar offsets bullish Opec outlook

[NEW YORK] Oil prices drifted on Tuesday, erasing early gains, after a rebound in the dollar offset optimism built on Opec promises to curb output when it meets in November.

The dollar turned positive, shedding its early weakness, on speculation that recent US economic data strengthened the case for higher US interest rates. A firmer dollar makes crude oil and other commodities denominated in the greenback less affordable to holders of other currencies.

Oil prices are up 13 per cent from three weeks ago after the Organization of the Petroleum Exporting Countries proposed its first output cut or freeze in eight years to rein in a global crude glut when it gathers on Nov 30 for its policy meeting.

The oil rally has, however, stalled at around US$50 a barrel on doubts whether Opec will reach a deal that will satisfy all its 14 members. Most in the Saudi-led cartel need higher prices to repair damage done to their economies after crude fell to almost US$26 a barrel this year from 2014 highs above US$100. But some, like Iran, prefer not to cut output.

"There is definite willingness and desire on behalf of most countries to see prices go higher," Ian Taylor, chief executive at Vitol, the world's top oil trader, said at an industry conference in London. "Expectations are that we will get something; whether it is quite good enough to get a substantial rebalancing in the short term, I am not sure."

Brent crude was down 20 cents, or 0.4 per cent, at US$51.32 a barrel by 11:28 am EDT (1528 GMT). It had risen 1 per cent earlier to a session high of US$52.09.

US West Texas Intermediate (WTI) crude slid 5 cents to US$49.89, after reaching US$50.53 earlier.

"We shorted WTI this morning at US$51," said Phil Davis, trader at PSW Investments in Woodland Park, New Jersey. "We think ultimately that over the course of the next 30 days or so, it will drop down to US$37.50 or possibly lower." Some remain positive in their supply-demand outlook for oil.

Analysts at Bernstein Energy said global oil inventories rose by just 17 million barrels to 5.618 billion barrels in the third quarter, the smallest build since the fourth quarter of 2015.

Saudi crude exports in August fell to 7.305 million barrels per day from 7.622 million bpd in July, data showed on Tuesday.

Even so, some say there is too much riding on Opec being able to balance supply-demand in the near term, with prices often rising when the cartel's members spoke in recent weeks. "The market continues to reward even the thinnest rays of light that the glut could finally be easing," said John Kilduff, partner at New York energy hedge fund Again Capital.