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By Bloomberg

Oil traded near $60 a barrel in New York as the stronger dollar checked the investor appeal of crude even as a U.S. surplus showed signs of diminishing.

West Texas Intermediate futures fell 0.7 percent. U.S. crude inventories probably shrank by 1.5 million barrels through June 19, according to a Bloomberg survey before an Energy Information Administration report Wednesday. The U.S. currency advanced against the euro for a third day, making dollar-priced commodities less attractive.

The dollar strengthened as signs of an improving U.S. economy prompted speculation the Federal Reserve will raise interest rates this year. While U.S. crude stockpiles declined 30 percent in the last two months, they are still almost 90 million barrels above the five-year average for this time of the year as output remains near a record.

“The stronger dollar is weighing on prices this morning,” Jens Pedersen, a Copenhagen-based commodities analyst at Danske Bank A/S, said by e-mail. “I am looking for U.S. demand to strengthen in the second half of the year on the back of higher economic growth. That should lead to a further tightening of the U.S. supply-demand balance and result in lower inventories.”

West Texas Intermediate for August delivery fell as much as 52 cents to $59.86 a barrel in electronic trading on the New York Mercantile Exchange and was at $59.98 at 1:06 p.m. London time. The July contract expired Monday after climbing 7 cents to $59.68 a barrel. Total volume was about 33 percent below the 100-day average for the time of day. Front-month prices have advanced 13 percent this year.

U.S. Supplies

Brent for August settlement slipped 7 cents to $63.27 a barrel on the London-based ICE Futures Europe exchange. It gained 32 cents to $63.34 on Monday. The European benchmark crude traded at a premium of $3.27 to WTI.

U.S. crude inventories slid to 467.9 million barrels through June 12, EIA data showed. Production averaged 9.59 million a day, near the fastest pace in weekly records compiled by the Energy Department’s statistical arm since January 1983.

Refinery utilization probably increased by 0.4 percentage points to 93.5 percent in the week ended June 19, according to the median projection in the Bloomberg survey of six analysts.

Fed Talk

The dollar gained after a surge in U.S. home sales on Monday revived bets the Federal Reserve will raise interest rates this year. Goldman Sachs Group Inc. said in a report Monday that the European Central Bank’s quantitative-easing program will send the euro toward parity with the U.S. currency. The euro fell 1.2 percent to $1.12 at 1:07 p.m. London time.

Iranian and European officials accused each other of backing away from a nuclear agreement as a June 30 deadline for a final accord approaches. The Persian Gulf nation, OPEC’s fifth-largest producer, has estimated it could double exports within six months of a deal to lift international sanctions.

Iranian Foreign Minister Mohammad Javad Zarif held talks with European diplomats on the sidelines of an EU foreign ministers’ conference in Luxembourg Tuesday. The Middle Eastern country needs to “negotiate constructively, rather than trying evasive maneuvers in the last meters,” German Foreign Minister Frank-Walter Steinmeier said.

Diplomats from China, France, Russia, the U.K., the U.S. and Germany are seeking to agree curbs on Iran’s nuclear program in return for the lifting of sanctions. The Persian Gulf nation is currently allowed to export about 1 million barrels a day of oil.

Nuclear Deal

“A nuclear deal might release additional barrels and that glut might become more of a story,” said Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney.

The Organization of Petroleum Exporting Countries, whose 12 members are responsible for about 40 percent of the world’s supply, maintained its output quota at 30 million barrels a day at a June 5 meeting. Saudi Arabia, Iraq and United Arab Emirates, the group’s biggest producers, each pumped at a record in May, according to the International Energy Agency.

The Chicago Board Options Exchange Crude Oil Volatility Index closed at 30.06 on Monday, signaling the least volatile trading since May 15.