Oil fell on Tuesday as a firmer dollar encouraged investors to take profits from a two-week rally ahead of weekly data that analysts have forecast will show a build in U.S. crude inventories.
Brent crude futures were down 91 cents, or 1.4 percent, at $66.59 a barrel by 2:26 p.m. ET, while U.S. West Texas Intermediate crude ended Tuesday's session down 90 cents, or 1.4 percent, at $63.01.
"We got a little extended on the upside - we had a price advance of more than $6 a barrel in crude in less than two weeks," said Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates. "And now I think we have some money managers taking profits ahead of the API and EIA data."
Analysts polled by Reuters expect data to show U.S. crude inventories rose 2.7 million barrels last week. Industry group the American Petroleum Institute releases its weekly figures on Tuesday at 4:30 p.m. EST.
The United States Energy Information Administration (EIA) releases official data Wednesday morning.
Inventories have fallen by more than 100 million barrels, or a quarter, in the last 12 months, to around their lowest in three years. Seasonally, stocks tend to build in the first three months of the year.
But soaring U.S. production is upending global oil markets at a time when other major producers — including the Middle East-dominated Organization of the Petroleum Exporting Countries and Russia — have been withholding output to prop up prices.
The United States will overtake Russia as the world's biggest oil producer by 2019, International Energy Agency (IEA) Executive Director Fatih Birol said on Tuesday.
"U.S. shale growth is very strong, the pace is very strong ... The United States will become the No.1 oil producer sometime very soon," he told Reuters separately.
U.S. output was 10.27 million barrels per day (bpd), according to weekly government data released last Thursday, higher than the latest figures for Saudi Arabia, the world's largest exporter, and just below Russia.
In addition to its weekly statistics, the U.S. Energy Information Administration will publish a monthly report on crude supply, which analysts expect to include substantial upward revisions to U.S. oil output.
"It is likely that the ... monthly data will show U.S. crude oil production in December about 200,000-300,000 bpd above what was estimated in the weekly reports," Petromatrix analyst Olivier Jakob said in a note.
The dollar rose after Federal Reserve Chairman Jerome Powell said the central bank would stick with gradual interest rate increases. A strong dollar makes oil more expensive for buyers using other currencies.
Powell's comments pressured Wall Street stocks. "Were getting a little softening in the stock markets in response to some of the Fed comments," said Ritterbusch. "Thats enough to take us down a notch. Well see tomorrow what the EIA data says."