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US oil futures settle below $78; Brent slumps as dollar gains

Oil
Lucy Nicholson | Reuters

U.S. crude settled below $78 a barrel on Monday. Brent crude also dropped, with both reversing early gains as U.S. dollar strength outweighed worries about conflict in Libya and Ukraine.

The dollar rose 0.2 percent against a basket of currencies on Monday, regaining ground after dropping in European trade. Recent dollar strength has made oil and other commodities more expensive for holders of other currencies, suppressing demand.

Persistent concerns about a global surplus of crude amid signs of slowing growth has also pressured oil prices, which have fallen nearly 30 percent since June.

Read MoreWorst east Ukraine shelling for month; ceasefire looks in doubt

U.S. front-month crude futures closed $1.25 lower at $77.40 per barrel, after touching a session high of $79.85 earlier.

Brent crude also pared earlier gains and was last down more than $1 at $82 per barrel. The spread between the two global benchmarks widened slightly.

"There's been a lot of pressure of WTI [U.S. crude] today, there was a big huge reversal as we did see the dollar turn around," said Phillip Streible, senior market strategist at RJO Futures in Chicago. "I think we will probably consolidate around this range, everyone is looking ahead to the OPEC meeting."

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The Nov. 27 meeting of the Organization of the Petroleum Exporting Countries is a key focal point for a market awash with supply, but so far the cartel has given no clear indication that it will cut its output.

Kuwaiti Oil Minister Ali al-Omair said on Monday that OPEC was unlikely to cut production.

Intraday profit-taking meant crude's earlier gains on disruptions in Libya and heightened military activity in Ukraine were short-lived.

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"A stronger dollar and slower global growth continue to weigh on the market," said Oliver Sloup, director of managed futures at iiTRADER in Chicago. "When rallies happen, they are being taken as an opportunity to sell."

In Libya, an armed brigade from Operation Dawn, one of the factions backing the rival government, took control of the country's largest oilfield, El Sharara, a commander in charge of security at the site said. If confirmed, it would be the first attempt to take physical control of oil production by the rival government.

Meanwhile in Ukraine, goverment forces shelled the pro-Moscow stronghold of Donetsk on Sunday, putting a fragile cease-fire under pressure. An escalation of tensions in Ukraine could disrupt Europe's gas supplies from Russia, potentially increasing demand for oil.