Oil prices have taken a new tumble over concerns about return of Iran's crude to the market and a strong dollar.
On Tuesday, US crude benchmark fell below USD 50 a barrel as strong dollar dealt a blow to the market where oil price is determined in the US currency, analysts said.
Meanwhile, expectations about flooding of the market with higher amounts of Iranian crude and ensuing oversupply in an already glutted market also continued to drag prices lower, AFP reported.
US benchmark West Texas Intermediate (WTI) for August delivery lost 20 cents to hit USD 49.95, while Brent crude for September delivery fell about 14 cents to stand at USD 56.51 a barrel in afternoon trade on Tuesday.
"Most of the movement that we're seeing now in oil prices mainly comes from the dollar strength," said Daniel Ang, an investment analyst working with Phillip Futures in Singapore.
The dollar gained in value after chairman of Federal Reserve, Janet Yellen, once again predicted an increase in the US central bank's key interest rate later this year.
An increase in interest rates will encourage investors to use dollar because of the possibility of higher investment returns, thus boosting the US currency’s value.
Since oil price is determined in dollars, gaining of US currency will make crude oil more expensive, thus reducing demand and putting downward pressure on prices.
"Despite worries over Greece and the China stock sell-off, the Fed reiterated its intention to raise rates in 2015," Singapore's DBS Bank said in a market commentary.
An unnamed economist with Capital Economics said, "Our expectation is that the dollar's strength will continue over the next year and a half, given the contrast in the prospects for monetary policy in the US and its major trading partners."
Meanwhile, Ang, an analyst with Phillip Futures, said the return of Iranian oil to the market "is adding bearish pressure as the market is trying to price in the crude expected to be introduced by the end of the year."
Iran and the P5+1 group of countries – the US, the UK, Germany, France, China, and Russia – reached the conclusion of their negotiations over Tehran’s civilian nuclear program on July 14, reaching an agreement in the Austrian capital city, Vienna.
The agreement makes way for removal of all economic and financial sanctions against Iran through a resolution, which the UN Security Council adopted on Monday. The removal of sanctions will cover, among other things, all bans on Iran’s Central Bank, shipping, oil industry, and many other companies.