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Oil prices drop on strong dollar

The world’s biggest economy expanded at an annual rate of 3.5 percent in the July-September perio

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World oil prices sank on Thursday, as dealers took their cue from strength of the dollar and also digested stronger than expected third-quarter U.S. economic growth data.

In afternoon London trading, Brent North Sea crude for delivery in December shed 86 cents to stand at $86.14 a barrel.

U.S. benchmark West Texas Intermediate for December fell $1.24 to stand at $80.96 a barrel compared with Wednesday’s closing value.

The U.S. economy grew at a stronger-than-expected pace in the third quarter, lifted by lower imports and a surge in defence spending, according to government data released Thursday.

The world’s biggest economy expanded at an annual rate of 3.5 percent in the July-September period, the Commerce Department said in its first estimate for the quarter.

Economists had expected third-quarter growth would come in slower, with the consensus estimate at 3.0 percent, after the robust 4.6 percent expansion in the second quarter.

In reaction, the European single currency hit a three-week low at $1.2548 in London deals.

A stronger greenback makes dollar-priced crude more expensive for buyers using weaker currencies. In turn, that tends to dent oil demand and price levels.

The oil market sank on Thursday in line with European equities, as investors also worried over the withdrawal of U.S. Federal Reserve stimulus and the health of the eurozone’s banking sector.

“It is a firmer U.S. dollar in particular that is putting pressure on oil prices after the U.S. Federal Reserve expressed greater optimism about the U.S. economic outlook following its monetary policy meeting,” added Commerzbank analysts in a research note to clients.

As expected, the U.S. central bank wound up its quantitative easing stimulus program while keeping in place plans to maintain ultra-low interest rates well into 2015.

Daniel Ang, investment analyst at Phillip Futures in Singapore, said investors also had an eye on the latest U.S. supply report on Wednesday, which showed crude reserves rose 2.1 million barrels in the week ended October 24.

The figure was less than analysts’ consensus estimate of a 3.1 million barrel surge.

But Ang said that although the inventories rise was smaller than expected it still does not alleviate the oversupply situation in the U.S.