Oil drops 9% on week on stronger dollar, glut warning

Global oil prices tumbled on Friday and fell 9 percent on the week, hit by a renewed rally in the dollar and a warning by the International Energy Agency (IEA) that the oil glut is growing.

Data that showed a sharp drop in the number of US rigs drilling for oil failed to inspire market bulls.

Benchmark Brent oil settled near a one-month low below USD 55 a barrel and US crude settled near a 2-1/2 month low under USD 45.

The dollar hit a 12-year high in its march toward parity with the euro, jacking up the cost of oil and other dollar-denominated commodities for holders of other currencies. The 19-commodity Thomson Reuters/Core Commodity CRB Index .TRJ CRB fell a six-year low.

"We aim to break the year's low in crude next week," said Tariq Zahir, an oil bear at Tyche Capital Advisors in Laurel Hollow, New York. Brent fell to USD 45.19 in January, while US crude dropped to USD 43.48.

Oil began the day lower after the IEA, which advises industrialized countries on energy, warned the global glut was building and the United States may soon run out of tanks to store crude.

"US supply so far shows precious little sign of slowing down," the IEA said. "Quite to the contrary, it continues to defy expectations."

Some traders also worried about the prospect of Iran reaching a partial nuclear deal with world powers by end March and a full agreement by June. Such a deal could end sanctions against Tehran, enabling it to export more crude, which would suppress prices.

The only real bullish factor on the day was data from oil services firm Baker Hughes showing the number of rigs drilling for oil in the United States fell by 56 this week to 866, the lowest since March 2011. A lower rig count signals a drop in oil output. 

News of a US government proposal to buy up to five million barrels of oil for its Strategic Petroleum Reserve also elicited little interest from market bulls.

Brent LCOc1 closed at USD 54.67, down USD 2.41, or 4.2 percent, on the day. US crude CLc1 finished at USD 44.84, down USD 2.21, or 4.7 percent. Both dropped 9 percent on the week.

Brent's premium to US crude, a spread that commands one of the biggest volumes in oil, turned volatile, moving from a 10-day high of USD 11 a barrel to below Thursday's close of USD 10.