Oil prices deepened losses toward $55 a barrel on Wednesday as Opec deliberated a second supply increase to cool spiralling prices and a recovering dollar lured some fund money out of commodities. The US dollar held near a one-month high against the euro on Wednesday, boosted by the Federal Reserve's decision to raise interest rates by a quarter percentage point to 2.75 percent. US light crude traded down 43 cents to $55.60 a barrel, slipping further from the record $57.60 struck last week after a 2.5 percent drop on Tuesday on speculative profit-taking.
Brent crude oil fell 24 cents to $54.35 a barrel.
But brokers and traders said the market's bullish sentiment was intact, with prices up nearly 28 percent from the start of the year as booming demand in the United States and China threatens to strain global production capacity.
"I don't think this little dip we're having is going to last too long," said Bob Frye, a Woodside, California-based commodity broker at Access Futures and Options Trading. "I'm looking for a lot higher prices - $60 to $63 is my major target."
The market will be watching US government data due out at 1530 GMT on Wednesday, expected to show commercial crude stocks rising but product inventories in decline as many refiners are still shut for maintenance and demand remains firm.
Crude inventories probably rose 2 million barrels in the week to March 18, a Reuters survey of 12 analysts found.
Gasoline stocks were expected to have fallen 1.2 million barrels and distillate stocks, which include heating oil, were seen down 1.3 million barrels.
Dealers will be scrutinising the gasoline data after last week's steep fall in stocks showed demand was running strong despite record-high prices at the pump.
Opec President Sheik Ahmad al-Fahd al-Sabah said on Tuesday producers would not need to decide for up to two weeks whether to increase supply by another 500,000 barrels per day (bpd), but could act quickly if needed.
The Organisation of the Petroleum Exporting Countries (OPEC) agreed on March 16 to immediately raise output limits by 500,000 bpd but failed to halt crude's rally with prices shooting to a record following day.
Many analysts are concerned that Opec's output hikes will leave the cartel with little spare production capacity to deal with unexpected supply outages. The group is already pumping at close to a 25-year high and non-Opec producers are at full tilt.
Adding to concerns is a three-day warning strike called for April 11 by the two main oil unions in Nigeria, the world's eighth-largest oil exporter and a big supplier of high-quality sweet crude, coveted for its ability to make gasoline.
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