US oil settles down 27 cents, or 0.55%, at $48.52 a barrel

Workers from Select Energy Services at a Hess fracking site near Williston, N.D.
Andrew Cullen | Reuters

Oil prices weakened heading into U.S. crude's settlement Thursday after a larger-than-expected drawdown in U.S. crude stockpiles was balanced by a stronger dollar and position squaring ahead of the expiry of the front-month contracts in gasoline and diesel.

U.S. crude settled down 27 cents, or 0.55 percent, at $48.52 a barrel.

Benchmark Brent crude oil was down 15 cents a barrel at $53.20, after settling 8 cents higher in the previous session.

Oil has lost more than $10 a barrel over the past month, with global benchmark Brent nearing a six-month trough earlier this week and U.S. futures near four-month lows, amid a global glut, resurgent dollar and recent stock market tumble in China.

But an unexpectedly large weekly draw of 4.2 million barrels of crude brought the selloff to a grinding halt.

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"There are people still digesting the data from yesterday and that's feeding into today's sentiment, but you also have a stronger dollar to deal with," said David Thompson, executive vice-president at Powerhouse, an energy-specialized commodities broker in Washington.

The dollar rose as news of a pickup in U.S. economic growth in the second quarter bolstered the chances for a U.S. interest rate hike as soon as September.

A robust U.S. dollar often weighs on commodities as raw materials such as oil, traded in the U.S. currency, become less affordable for users of the euro.

Oil optimism washed away by glut?

In oil products markets, gasoline jumped 0.5 percent, after Wednesday's U.S. government data showed demand for the fuel up 6.2 percent from a year ago.

Ultralow sulfur diesel rose 0.25 percent.

The front-month contracts in gasoline and diesel futures, set to expire on Friday, dominated activity on the petroleum complex, traders and brokers said.

"With the products expiration tomorrow, the cash markets around the Gulf Coast and New York Harbor are well supplied. There's some intense position squaring going on and that's taking some action away from crude," said Donald Morton, who runs an energy-trading desks at Herbert J. Sims & Co., investment banking house in Fairfield, Connecticut.

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Oil prices have more than halved over the past year as key Middle East producers pumped at near-record levels despite a global glut. The Organization of the Petroleum Exporting Countries put out around 3 million barrels per day above demand in the second quarter.

Dutch Bank ABN AMRO said Thursday it expects Brent to average $65 in 2016, down from a previous forecast of $75.