Oil Pares Gains as Dollar Recovers

U.S. crude inventories seen down for 4th straight week.

Crude oil futures edged up on Wednesday on expectations that U.S. crude stocks fell for a fourth straight week, but prices pared early gains as the dollar reversed losses.

July Brent crude was up 13 cents at $63.85 a barrel by 1043 GMT, easing back from an early high of $64.67, while U.S. crude was up 23 cents at $58.26 a barrel after touching $58.95 earlier in the session.

The dollar was unchanged against a basket of currencies, recovering from a drop of 0.33 percent.

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

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

U.S. commercial crude inventories are expected to have fallen by 2 million barrels last week, a preliminary Reuters survey showed. Declining U.S. 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 4:30 p.m. ET (2030 GMT), delayed by one day because of the U.S. Memorial Day holiday on Monday. The U.S. government's Energy Information Administration will publish its own data on Thursday at 11:00 a.m ET (1500 GMT).

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

"This trajectory reinforces our view of downside still to be priced in the oil price in the second half of 2015," BMI said, adding that they expected Brent to average $59 a barrel this year.

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 is expected to keep production steady at its meeting on June 5.

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

By Himanshu Ojha