NEW YORK: A rallying dollar sent oil prices sharply lower on Tuesday, with Brent falling more than U.S. crude as players took profits on recent highs in Brent's premium, traders said.
Expectations of a mid-year U.S. interest rate hike pushed the dollar to multi-year highs, making commodities denominated in the greenback costlier for holders of other currencies.
Brent, the London-traded global oil benchmark, settled almost 4 percent lower.
In New York, U.S. West Texas Intermediate (WTI) crude closed down more than 3 percent, pressured by the strong dollar and expectations that government data would show another record high in U.S. crude inventories last week from supply builds.
The American Petroleum Institute (API), an industry group, however, said after market settlement that data from its oil producing members showed an inventory drop of over 400,000 barrels instead for last week.
The API data is a precursor to official stockpile numbers due on Wednesday from the U.S. government's Energy Information Administration. Reuters' own survey calls for a stock build of 4.4 million barrels for the week ended March 6.
Brent settled at $58.39 a barrel, down $2.14, and U.S. crude finished the session at $48.29, falling $1.71.
"The dollar's might is creating unexpected headwinds for oil. Brent particularly is taking it harder than WTI as people unwind and take profit in the spread between the two," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow, New York.
The Brent-U.S. crude differential fell to $7.41, its narrowest in a month, before settling at $8.10, nearer to Monday's settlement.
The spread, which commands one of the biggest volume trades in oil, has narrowed by nearly 40 percent since hitting a 13-month high of $13 at the end of February.
WTI fell less than Brent as players bet on a further narrowing of its discount to the London benchmark after forecasts for a modest build last week in the Cushing, Oklahoma delivery point for U.S. crude versus the rest of the country.
Between June and January, crude prices fell 60 percent on fears of a global oil glut and the refusal of Saudi Arabia and other OPEC members to cut output. Last month, Brent stabilized at around $60 and U.S. crude at around $50.
Saudi King Salman said on Tuesday his kingdom will continue with oil and gas exploration despite the price drop.
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