Oil settles lower on stronger dollar, fears of oversupply

By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices settled lower on Tuesday as weaker manufacturing numbers and a stronger dollar weighed on demand, while the OPEC+ decision to pause output hikes in the first quarter of next year could signal the group's concern about a potential supply glut.

Brent crude futures closed 45 cents, or 0.7% lower at $64.44 a barrel. U.S. West Texas Intermediate crude was down 49 cents, or 0.8%, at $60.56. 

"Crude futures are feeling the pressure today from high U.S. dollar valuation. The U.S. stock market is also seeing a heavy downside correction in the early trade as the government shutdown may be beginning to add downside pressure, which could eventually hurt domestic fuel demand," said Dennis Kissler, senior vice president of trading at BOK Financial. 

The dollar climbed to a four-month high against the euro on Tuesday as divisions in the Federal Reserve raised doubt about the prospect of another rate cut this year. A stronger U.S. currency makes dollar-priced assets such as oil more expensive to those holding other currencies. 

Wall Street fell sharply following warnings of a market selloff from some big U.S. banks.

The U.S. government shutdown entered its 35th day, matching a record set during President Donald Trump's first term for the longest in history.

The toll is mounting. Food assistance for the poor was halted for the first time, federal workers from airports to law enforcement and the military are going unpaid and the economy is flying blind with limited government reporting.

In Asia, Japan's manufacturing activity shrank in October at the fastest pace in 19 months, a private-sector survey showed.

French oil major TotalEnergies <TTEF.PA> expects global oil demand to rise until 2040 before declining gradually as energy security concerns and a lack of political coordination slow efforts to cut emissions, it said in its annual energy outlook report.

On Sunday, OPEC+, the Organization of the Petroleum Exporting Countries and allied producers, agreed to a small oil output increase for December and a pause in increases in the first quarter of 2026. 

On Tuesday, a Reuters survey found that OPEC's oil output rose further in October after an OPEC+ agreement to raise production. The scale of the increase slowed sharply from September and the summer months.

The boost to oil prices from the U.S. sanctions on Russian energy companies Lukoil and Rosneft was fading, chief analyst of commodities Bjarne Schieldrop at SEB Research said in a note.

"Come Nov 21 when the sanctions (on other companies that continue to trade with the Russian companies) go into force they will likely evaporate, disappear or be pushed out in time." 

Market participants are now awaiting the latest U.S. inventory data from the American Petroleum Institute (API), due later in the day. A preliminary Reuters poll showed U.S. crude oil stockpiles were expected to have risen last week. [EIA/S] 

(Reporting by Seher Dareen in London, Ashitha Shivaprasad in Bengaluru and Emily Chow in Singapore; Editing by Ros Russell, Louise Heavens, Tomasz Janowski and David Gregorio)