HOUSTON, Feb 6 (Reuters) - Oil fell for a third day on Tuesday as the U.S. dollar rose to its highest in more than a week in the wake of a sharp sell-off on Wall Street and other stock markets, a global rout that wiped out $4 trillion in value.
The crude market remains in positive territory for the year thus far, even after Wall Street stocks on Monday posted their largest one-day fall since late 2011.
Brent crude futures for April delivery settled down 76 cents, or 1.12 percent at $66.86 a barrel, after at touching a session low of $66.53, the lowest since Jan. 2.
U.S. West Texas Intermediate futures dipped 76 cents, or 1.18 percent, to settle at $63.39 a barrel, the lowest since Jan. 22.
"Crude was acting like a puppet with the equity markets and dollar acting as the puppeteer," said Brian LaRose, senior technical analyst at ICAP.
The benchmark U.S. stock index, the S&P 500, has lost 6.8 percent since it hit a record high on Jan. 26. Oil has shed 5.2 percent.
U.S. stocks eventually rebounded in volatile afternoon trading. Major indexes rose more than 1 percent in a drastic swing after starting the session 2 percent lower from Monday. The difference between the high and low for the Dow on Tuesday was more than 1,000 points.
"With so much volatility in the equity markets people don't trust that rebound. Any time you get a 1,500-point move in one day that's going to spook markets," said Phillip Streible, senior market strategist at RJO Futures in Chicago.
Oil's inverse relationship to the dollar, whereby a stronger currency makes it more expensive for non-U.S. investors to buy dollar-denominated assets, has reasserted itself this week, with the greenback up 1 percent since Feb. 1.
One factor that has lent support to oil prices is the structure of the forward curve. The prompt futures contract is trading well above those for delivery further in the future .
Oil prices have also been supported by a 1.8 million barrels per day (bpd) cut in supply by the Organization of the Petroleum Exporting Countries and Russia.
Still, rising U.S. supply has pressured oil. The U.S. Energy Information Administration said on Tuesday it expects domestic crude oil production in 2018 to rise by 1.26 million barrels per day (bpd) to 10.59 million bpd this year. Last month, it expected a 970,000 bpd year-over-year increase to 10.27 million bpd.
A preliminary poll by Reuters showed analysts expected weekly data to show that U.S. crude inventories last week rose for a second straight week.
Industry group the American Petroleum Institute will issue its data on stocks on at 4:30 p.m. EST, followed by official figures from the U.S. Energy Department on Wednesday morning.
(Additional reporting by Amanda Cooper in London and Henning Gloystein in Singapore; Editing by David Gregorio)