LONDON: Brent crude oil futures fell towards $109 a barrel on Monday, weighed down by a stronger dollar and data showing output from the OPEC group of exporting countries hit a three-month high.
Brent shed early gains to fall 19 cents to $109.22 a barrel by 1138 GMT, after ending last week 1 percent lower. U.S. oil, or WTI, pared its gains to trade up 4 cents at $102.75 a barrel, after ending last week down 1.6 percent.
Both had gained early in the day on data showing China's factory activity expanded at its quickest pace in five months in May, adding to a string of strong indicators from the United States that suggest an improvement in global economic outlook.
China's official Purchasing Managers' Index rose to 50.8 in May from April's 50.4, the National Bureau of Statistics said on Sunday, beating market expectations of 50.6.
"Anything over 50 is good news and is supportive of prices, but this ... is not a bolt from the blue so, to some extent is priced in," Gareth Lewis-Davies, a senior energy analyst at BNP Paribas, said.
"Overall, it looks like Brent and WTI, though zigzagging, are in a downward trend. Gold has followed the same trend as the dollar has strengthened."
A stronger dollar tends to put pressure on commodities including oil, which are priced in the greenback, as it makes them more expensive for non-U.S. importers.
Brent is likely to fall towards $108.43 after breaking through a support level at $109.41 a barrel, while U.S. oil is expected to end its rebound and drop to a support at $102.30, according to Reuters technical analyst Wang Tao.
Conversely, the dollar index is seen rising to 80.80 in a week as it has cleared resistance at 80.44, Tao said.
RISING OPEC SUPPLIES
While oil prices drew some support from worries over Ukraine and Libya's repeated failure to ramp up exports, rising supplies from other producers also put downward pressure on Brent.
OPEC's oil output rose to a three-month high in May, a Reuters survey found on Friday, as increased supplies from Angola and a further gain in exports from southern Iraq outweighed worsening unrest in Libya.
Supply from the Organization of the Petroleum Exporting Countries (OPEC) averaged 30.02 million barrels per day (bpd), up from 29.68 million bpd in April, according to the survey based on shipping data and information from sources at oil companies, OPEC and consultants.
Iraq's oil exports rose by 8 percent in May, and a floating terminal was inaugurated that will expand shipping capacity from its southern ports by 800,000 bpd, the oil ministry said on Sunday.
"Looking forward, as OPEC prepare to meet here in Vienna on 11 June, we see practically no chances that the current overall target of 30 million barrels per day is changed," JBC analysts said in a note to clients.
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