Crude oil prices headed lower in early Asian trade Thursday as a stronger dollar and the unexpected increase in U.S. crude inventories triggered selling. On the New York Mercantile Exchange, light, sweet crude futures for delivery in June CLM6, -1.22% traded at $47.63 a barrel, down $0.57, or 1.2%, in the Globex electronic session. July Brent LCON6, -1.61% crude on London's ICE Futures exchange fell $0.74, or 1.4%, to $48.20 a barrel. Oil prices had surged in recent sessions as outages in Africa and Canada, economic woes among Latin American producers, and production declines in the U.S. propelled expectations of a smaller glut. Even as late as Wednesday afternoon, Brent, the global benchmark, was lumbering steadily towards $50 a barrel, a level unseen since November. But oil futures reversed direction after minutes of the Federal Reserve's April meeting indicated that the central bank could raise U.S. interest rates as early as next month, causing the dollar to jump. The Wall Street Journal Dollar Index BUXX, +0.04% which tracks the dollar against 16 other currencies, was last down 0.01%. A stronger U.S. currency makes dollar-traded oil more expensive for foreign buyers. Another factor suppressing prices could be profit-taking after prices rose to six-month high earlier in the week. "The market may be sufficiently overbought to peak at any time here, but we may see at least a few sessions of consolidation at a high level to help define a top rather than a more abrupt A-shaped market turn," said Tim Evans, an energy analyst at Citi Futures. In recent weeks, the ongoing wildfires in Canada and supply disruptions in Nigeria and Libya have taken at least 1 million barrels of oil offline each day. Fiscal distress in Venezuela is also posing challenges for its oil operations. "The fact that oil hasn't pushed through $50 a barrel suggests the market is discounting the impact of the disruptions. As these issues linger, we expect an increasing supply risk premium will price into the market," said Daniel Hynes, senior commodity strategist with ANZ. Moreover, some analysts said with oil prices still below production cost, the current price level is still not economical enough to spark a rebalance in the market. A Bernstein research report estimates global marginal cost for non-Organization of the Petroleum Exporting Countries fell by 30% to $73 a barrel in 2015, less than the fall in Brent of 47% to $52 a barrel. "With oil prices falling more rapidly than costs, industry margins have been wiped out and the industry is free cash flow negative. This is not sustainable," said Neil Beveridge, senior analyst at Bernstein, adding that global oil market is unlikely to see a rebalance until prices edge up to at least $60-$70 a barrel. Nymex reformulated gasoline blendstock for June RBM6, -1.34%, the benchmark gasoline contract, fell 189 points to $1.6300 a gallon, while June diesel traded at $1.4646, 185 points lower. ICE gasoil for June changed hands at $434.25 a metric ton, down $9.50 from Wednesday's settlement.
