Oil Falls on Dollar, Yemen Talks, Libya Output

Oil prices fell on Monday as the Greek debt crisis boosted the dollar, making fuel more expensive to holders of other currencies, and as UN talks offered a chance for peace in Yemen where crude exporter Saudi Arabia is involved in a civil war.

Brent crude oil dropped $1.47 to a low of $62.40 a barrel, before recovering to trade around $62.50, down $1.37, by 1240 GMT. U.S. light crude oil, also known as West Texas Intermediate (WTI), fell to a low of $59.04, down 92 cents.

U.N. Chief Ban Ki-moon launched Yemen peace talks in Geneva on Monday with a call for a humanitarian truce after warplanes from a Saudi-led Arab coalition pounded the capital, Sanaa.
Investors are increasingly concerned about surplus supply in the global oil market with the Organization of the Petroleum Exporting Countries pumping around 2 million barrels per day (bpd) more than needed, according to most industry estimates.

Production has been increasing in top OPEC exporters Saudi Arabia and Iraq, and a deal with Iran over its nuclear programme may soon lift sanctions on the Islamic Republic, allowing it to increase oil exports.

Output is also increasing in Libya, where production has been constrained by civil war.

"Sentiment this morning gets a bearish touch from negative equities, a dollar to the strong side, Greek concerns and news of some increase in Libya oil production," said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.

Schieldrop said world oil demand was increasing, but that might not be enough to soak up a global oil supply glut.

"It (oil demand) is probably not strong enough to cover this gap. The market thus continues to run a surplus," he said.

Brent came under additional pressure ahead of the expiry of the front futures contract for July at the close on Monday. The spread between Brent and WTI <CL-LCO1=R> narrowed to as little as $3.24 a barrel, from around $7 a month ago and over $8 in April.

Brent has fallen from a high above $66 last week and appeared to be settling into a range between $60 and $65, said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.

"There's a good possibility that we will test the lower end of this range this week," Fritsch said.

"The market is oversupplied and output continues to rise slowly, so oil prices should stay under pressure."    

 (By Christopher Johnson, Additional report by Hennning Gloystein in Singapore)