Crude dropped the most in more than a week as the dollar strengthened and traders braced for an end to a record run of U.S. inventory declines.

Futures in New York dipped 0.9 per cent on Monday as the rising value of the U.S. currency crimped demand for dollar-denominated assets. At the same time, crude held in U.S. storage tanks and terminals probably increased last week for the first time since early November, halting an unprecedented run of withdrawals.

“That’s the biggest reason why you are seeing pressure on crude -- it’s a function of the reverse correlation to the dollar,” Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York, said by telephone. “There is the expectation among a sizeable amount of the energy space that there will be a storage build for the first time in eleven weeks.”

A contributing factor to Monday’s price drop was anxiety that hedge fund managers may begin unwinding wagers on higher oil prices after those bets spiraled to an all-time high. “Some of this all-time record speculative position is starting to get out a little bit,” Yawger said.

Oil lingers near the highest levels in three years amid supply caps by the Organization of Petroleum Exporting Countries and allied producers including Russia. The majority of OPEC members agree that cuts should be maintained until the end of the year, Iraqi Oil Minister Jabbar Al-Luaibi said.

Yet, with the U.S. benchmark around US$65 a barrel, the number of rigs drilling for crude in American fields is on the upswing. Iranian Oil Minister Bijan Namdar Zanganeh warned that crude at US$60 will encourage output from shale fields, pushing prices down again. U.S. crude production currently sits at 9.88 million barrels a day.

“It’s still the dollar trade,” John Macaluso, a trader at Tyche Capital Advisors LLC in New York, said by telephone. “The rig count was another significant number and production is getting closer and closer to 10 million barrels a day.”

U.S. crude stockpiles probably rose by 669,000 barrels last week, according to the median estimate of analysts surveyed by Bloomberg.

Record bullish bets

Meanwhile, in the latest ICE Futures Europe and U.S. Commodity Futures Trading Commission data, money managers reported record wagers on continued price increases for both U.S. and global oil benchmarks, along with gasoline and diesel.

West Texas Intermediate for March delivery fell 58 cents to settle at US$65.56 a barrel on the New York Mercantile Exchange. Total volume traded was about 3 per cent above the 100-day average.

Brent for March settlement dropped US$1.06 to end the session at US$69.46 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of US$3.90 to WTI, the smallest since August.

The dollar rose, spurred by an advance in Treasury yields. The Bloomberg Dollar Spot Index added as much as 0.5 per cent.

“Further pronounced strength in the greenback could threaten crude’s recent mojo,” a group of Baird Equity Research analysts including Joseph Allman said in a note to clients.