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US oil settles at $46.29 a barrel, up 41 cents, or 0.89%

An oil pump jack in the oil town of Gonzales, Texas.
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An oil pump jack in the oil town of Gonzales, Texas.

Oil prices rose on Monday as a softer dollar and stronger U.S. equity markets helped crude futures rebound from an earlier drop pressured by worries about increased drilling activity for oil in the United States.

Data from energy monitoring service Genscape showing a draw of 330,611 barrels at the Cushing, Oklahoma delivery point for U.S. crude futures in the six days to Sept. 12 also supported oil prices, said traders who saw the data.

Brent crude oil futures rose 30 cents to $48.31 a barrel, by 2:38 p.m. ET, after earlier dipping below $47.

U.S. West Texas Intermediate futures were up 37 cents at $46.25 a barrel, having traded as low as $44.72.

The market was boosted later by reduced expectations for a U.S. Federal Reserve rate hike this month, which sent the dollar lower and equity markets higher. A softer dollar makes greenback-denominated commodities, including crude, more affordable to holders of the euro and other currencies.

"We still see some difficult choppy trading conditions ahead with the energy complex buffeted by occasional surprises on the fundamental front, only to be offset by macroeconomic headlines that can quickly negate the prior day's price swing," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

Notwithstanding Monday's rebound, oil prices are down about 5 percent since Sept. 8, partly reversing a 10 percent rally early in the month that took prices to around $50 a barrel. Much of that decline was pressured by the dollar's rally on speculation that the Fed may resort to a rate hike in September.

Andy Lipow, president of Lipow Oil Associates, said traders appeared to be pricing in protracted weakness for the dollar as expectations for higher interest rates cooled off.

Gasoline futures, up more than 2 percent, were also lending support to crude prices, he said.

Fundamentally, oil prices got a boost last Thursday after government data showed an extraordinary drop of 14.5 million barrels of U.S. crude stockpiles during the week ended Sept. 2, the largest weekly drawdown since 1999.

Traders said the earlier price falls on Monday and Friday were a result of increasing oil drilling activity in the United States, which indicated that producers can operate profitably around current levels.

"The idea that we will continue to bounce off the $50 per barrel handle is proving correct," said Matt Stanley, fuel broker, Freight Investor Services (FIS) in Dubai, pointing towards "the dynamic of shale oil" as the main reason to have pulled prices back down.

Speculative oil traders also became less confident of higher oil prices, cutting their net long U.S. crude futures and options positions for a second consecutive week last week, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

OPEC on Monday estimated oil output from its non-cartel rivals would grow more quickly than it originally estimated in 2017, pointing to a larger surplus than previously forecast.

A number of key members of the group, including Saudi Arabia, have hinted they may be willing to consider freezing output, although there is no certainty among market players that a deal could materialize any time soon.

Even if exporters agree on freezing output around current levels, analysts said that would do little to raise prices as most exporters are pumping out oil at or near record levels, and have adapted to do so at lower prices.

— CNBC's Tom DiChristopher contributed to this story.