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U.S.
drillers cut the number of rigs by just one last week, data
showed on Friday, and Goldman Sachs said prices were at a level
that would spur activity. The dollar could rally further, Morgan
Stanley said, adding to a growing list of headwinds crude faces
that include rising OPEC supply.
Brent crude was down 45 cents at $65.07 a barrel at 0948 GMT,
while U.S. crude, also known as WTI, was 43 cents lower at
$59.29.
"The main factor weighing on prices is the significantly
appreciating U.S. dollar," said Carsten Fritsch, analyst at
Commerzbank. "What is more, the decline in drilling activity in
the U.S. that has been ongoing for 23 weeks appears to have
stopped."
More drilling in the United States would lessen the prospect of
a tighter oil market in coming months, one of the factors that
have helped Brent rise from a near six-year low close to $45 in
January.
"We believe that should West Texas Intermediate prices remain
near $60 a barrel, U.S. producers will ramp up activity, given
improved returns," Goldman said in a report.
A stronger dollar makes dollar-priced commodities more expensive
for buyers using other currencies, and tends to weigh on oil
prices. The dollar hit a one-month high against a basket of
major currencies on Tuesday.
"The USD downward correction is complete," Morgan Stanley said
in a report. "A stronger dollar would only reinforce our
near-term concerns for oil prices, especially Brent."
Brent collapsed from $115 in June 2014 due to ample supplies in
a decline that deepened after OPEC last November dropped its
policy of cutting output to support prices, in a bid to slow
higher-cost competing supply sources such as U.S. shale.
Taking turns in dominating sentiment since then are concerns
about ample supplies currently and the prospect of a tighter
market ahead as supply growth from higher-cost producers slows.
The Organization of the Petroleum Exporting Countries gathers on
June 5. On Sunday, Iran said OPEC was unlikely to change its
production ceiling at the meeting.
(Editing by Alison Williams)
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