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Oil ends lower on firmer dollar, bearish outlook

Oil
Lucy Nicholson | Reuters

U.S. crude settled down 26 cents at $59.43 a barrel on Monday as a rallying dollar weighed on the commodities complex amid a bearish price outlook by influential Wall Street firm Goldman Sachs and risks of growing oversupply.

Crude oil prices erased early gains of more than $1 a barrel on worries of turmoil in the Middle East after a major advance by Islamic State militants in Iraq and renewed air strikes by a Saudi-led coalition against Houthi militia in Yemen.

But the market gave back those gains as trading progressed in New York, after the dollar rose 0.8 percent against a basket of major currencies, its most in three weeks.

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The 19-commodity Thomson Reuters/Core Commodity CRB Index, led by crude oil, was down nearly a quarter percent as the stronger dollar made raw materials denominated in the currency less affordable to holders of the euro and other denomination.

Front-month Brent futures were down 52 cents at $66.29 a barrel by 2:32 p.m.

"The fact that the dollar is reasserting its strength on oil despite the major geopolitical tensions in the Middle East shows that not everyone is convinced the oil rally we've had of late should continue," said Tariq Zahir, an oil bear at Tyche Capital Advisors in Laurel Hollow in New York.

Speculators cut their bets on rising Brent crude prices for the first time in two months, data showed on Monday.

Goldman said in a note circulated to its clients on Saturday, and reported by Reuters on Monday, that it expected Brent to trade at $55 a barrel by 2020, versus current levels above $65.

"We see global oil demand being met by U.S. shale, which is continuing to benefit from efficiency and productivity improvements, and OPEC," Goldman said in a report.

Read MoreUS shale has 'blinked' in battle against OPEC: IEA

Analysts said oil markets remained oversupplied, and that the glut could worsen if U.S. production picked up while OPEC output remained strong.

Kuwait OPEC Governor Nawal al-Fuzaia said that oversupply in the global oil market is due to slow demand and a rise in production from shale oil, but not from the Organization of Petroleum Exporting Countries.

Iran's Deputy Oil Minister Rokneddin Javadi told Reuters that OPEC was unlikely to cut output in June, and that Iran hoped its crude exports would return to pre-sanctions levels of 2.5 million barrels per day within three months once a deal to lift an oil embargo is finalized.