Oil fell more than 1 percent on Monday as a stronger dollar, ample US supplies and excess speculative length outweighed OPEC output curbs and rising tensions between the United States and Iran. Brent futures were down 88 cents, or 1.5 percent, at $55.93 a barrel by noon EST (1700 GMT). US West Texas Intermediate crude fell 67 cents, or 1.2 percent, to $53.16. The Brent premium over WTI narrowed to about $2.15, its lowest since Feb. 1. If it stays at that level at the close, it would be the smallest premium since Jan. 16.
The dollar edged up 0.2 percent versus a basket of currencies amid concerns over political uncertainty in Europe ahead of elections. "It's most likely the stronger US dollar," said Commerzbank analyst Carsten Fritsch of the reason for the dip in oil. A stronger dollar makes crude more expensive for other currency holders and usually weighs on the oil market.
Oil prices, while supported by the Organisation of the Petroleum Exporting Countries' (OPEC) supply cuts since the start of the year and a new spike in tension between Iran and the United States, are struggling for new direction.
"Any fresh bullish headlines out of OPEC, Iran, the weekly EIA (US Energy Information Administration) releases...will be packing less pricing punch going forward while bearish items could see an exaggerated reaction with most speculative entities fully allocated to the long side," Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.
The Trump administration's new sanctions against Iran, though not affecting oil output, raised concern about the potential for further developments that could hinder export growth in OPEC's third-largest producer.
Tension between Tehran and Washington has risen since an Iranian missile test that prompted the United States to impose sanctions on individuals and entities linked to the Revolutionary Guards.
Iran has been raising crude output since most international sanctions over its nuclear programme were lifted in 2016.
Tehran is exempt from the OPEC supply cuts.
The EIA said last week that US crude inventories have built sharply for four straight weeks, while data showed on Friday that the number of oil drilling rigs in the United States rose to the highest level since October 2015.
US crude futures, however, have well supported with WTI futures posting gains in seven of the past eight weeks.
Hedge funds and other speculators also boosted their bullish bets in US crude futures and options in the week to Jan. 31 to the highest level on record, betting prices will continue to rise, the US Commodity Futures Trading Commission (CFTC) said on Friday.