Oil prices fell on Thursday as the dollar strengthened, with investors keeping close tabs on developments related to the reduction of Iraqi Kurdistan oil exports.

Brent crude futures dipped 37 cents, or 0.5%, to $77.91 a barrel at 0300 GMT, while West Texas Intermediate crude fell 28 cents, or 0.4%, to $72.69 a barrel.

The dollar index, which generally trades inversely with oil, was 0.11% higher on Thursday at 102.75. A stronger greenback makes dollar-denominated commodities more expensive for holders of other currencies.

Producers have shut in or reduced output at several oilfields in the semi-autonomous Kurdistan region of northern Iraq following a halt to the northern export pipeline, with more outages on the horizon, company statements showed.

But the Kurdistan-Iraq premium in oil prices could vanish sooner than expected, analysts from Citi said Thursday.

The "changes in Iraq's domestic politics may lead to a durable political settlement very soon", said Citi, estimating that pipeline flows could grow by some 200,000 barrels per day (bpd).

Meanwhile, an unexpected drop in U.S. crude oil stockpiles limited price declines, with imports sliding to a two-year low, based on U.S. Energy Information Administration.

Crude inventories (USOILC=ECI) fell by 7.5 million barrels to 473.7 million barrels in the week to March 24, while analysts' expectations in a Reuters poll were for a rise of 100,000 barrels.

However, gasoline stocks (USOILG=ECI) fell by 2.9 million barrels to 226.7 million barrels, compared with analysts' expectations for a 1.6 million-barrel drop.

"A seasonal strengthening in demand by the end of Q2 is expected to drive (oil) prices higher from current levels," said analysts from National Australia Bank.

While oil prices softened slightly on Thursday, they remained within the trading band seen since the start of 2023, the analysts added.

Meanwhile, lower-than-targeted cuts to Russian crude production eased supply concerns.

Russian crude production fell by around 300,000 bpd in the first three weeks of March, less than targeted cuts of 500,000 bpd, sources familiar with the data told Reuters.