By Himanshu Ojha
LONDON (Reuters) - Brent crude reversed early gains to fall below $65 on Monday as the dollar strengthened, offsetting signs that U.S. shale output may have started to decline and concerns that fighting in Yemen could disrupt Middle East supplies.
The dollar rose 0.22 percent against a basket of currencies (DXY), making dollar-traded commodities such as crude oil more expensive for holders of other currencies.
"It seems that crude oil prices have come under renewed pressure this morning as the U.S. dollar rebounded," said Myrto Sokou, senior analyst at London-based Sucden Financial.
Brent
U.S. crude
Signs of a possible decline in U.S. crude output had lifted prices earlier in the day.
The number of active U.S. rigs drilling for oil has fallen for a record 20 weeks in a row to the lowest since 2010, according to data from oil services firm Baker Hughes, fuelling expectations of a drop in U.S. production.
Fighting in Yemen raged on as Saudi Arabia continued its air strikes against Houthi militia forces in Aden.
While Yemen itself is not among the biggest oil producers in the region, Gulf producers ship oil along the Gulf of Aden on Yemen's southern coast and through the narrow straits of Bab el-Mandeb, between Yemen and Djibouti.
Prince Abdulaziz Bin Salman Bin Abdulaziz, the deputy oil minister of Saudi Arabia, said on Monday that the kingdom's high oil production policy was based on the status of global demand.
Speaking to reporters in Saudi Arabia, the world's top oil exporter, he said the market was "excellent" and that Riyadh was keen to maintain its market share.
But analysts said demand would need to grow in order to keep prices higher.
"Sustaining the recent oil price rally requires firmer demand and a tangible supply response," Barclays (LONDON:BARC) analysts said in a note.
"The cart is moving ahead of the horse, and we take a cautious view on further price appreciation over the near term."
Libya's oil output is set to fall again as a strike by Libyan security guards over salary payments has forced the closure of the western El Feel oilfield, a spokesman for state oil firm NOC said on Sunday.
