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US oil settles down 16 cents, or 0.28%, at $56.99 a barrel

A worker adjusts the valve of an oil pipe at West Qurna oilfield in Iraq's southern province of Basra.
Atef Hassan | Reuters
A worker adjusts the valve of an oil pipe at West Qurna oilfield in Iraq's southern province of Basra.

U.S. oil futures settled lower after a volatile trading on Monday as the conflict in Yemen and falling U.S. rig counts lent some support, while ample global supply kept market participants cautious after prices reached 2015 peaks last week.

U.S. June crude closed down 16 cents, or 0.28 percent, at $56.99 a barrel. Brent June crude was down 60 cents at $64.70 a barrel, having swung from $64.40 to $65.61.

Brent's premium to U.S. crude pushed to above $8 a barrel on Monday, but fell below $7 after it failed to reach Friday's $8.43 a barrel peak.

Saudi-led aircraft pounded Iran-allied Houthi militiamen and rebel army units in Yemen on Monday as a humanitarian crisis worsened.

While Yemen is not a major oil producer, Gulf producers ship oil along the Gulf of Aden on Yemen's southern coast and through the narrow straits of Bab el-Mandeb, between Yemen and Djibouti. The conflict raises the specter of a proxy war between Iran and Saudi Arabia.

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The number of active U.S. oil-drilling rigs has fallen for a record 20 weeks in a row to its lowest since 2010, according to data from oil services company Baker Hughes, fueling expectations production will drop.

But U.S. commercial crude inventories have risen for 15 straight weeks to a record 489 million barrels.

"While the situation in Yemen and the falling U.S. rig count have supported, some caution remains because we have not seen evidence the cuts in drilling have translated into lower inventories," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.


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Another sign of ample supply was news that Saudi Arabia's Oil Minister Ali al-Naimi told officials in Beijing that the kingdom is ready to supply China with additional oil if required.

"Sustaining the recent oil price rally requires firmer demand and a tangible supply response," analysts at Barclays said in a research note.

Analysts at Bank of America Merrill Lynch raised their oil forecast for Brent and U.S. crude, while voicing some caution about ample supply.

"The market seems to have found a spot price low, and we lift our end of 2Q15 targets for WTI and Brent to $59 and $63 a barrel," they said in a note. "We revise up our 2016 Brent forecasts to $62 from $58, but remain bearish relative to the forward due to the big oil overhang."