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[LONDON] Oil dropped more than 1 per cent on Monday, with Brent slipping to around US$62 a barrel, depressed by a stronger dollar and a rise in Libyan crude output.
The US dollar hit an 11-year high against a basket of currencies after a rate cut in China dented the Chinese yuan and also hit emerging Asian currencies.
Brent crude hit a low of US$61.78 a barrel and was at US$62.08 by 0910 GMT, down 50 cents.
Front-month Brent jumped 18 per cent in February, the largest monthly rise since May 2009. US crude was down 55 cents to US$49.21 a barrel.
Disruption to oil supplies from members of the Organization of the Petroleum Exporting Countries (OPEC) has helped support crude with lower output from Libya and Iraq in the first couple of months of this year.
But output from several OPEC countries may be recovering.
Libya's oil production has now recovered to more than 400,000 barrels per day (bpd), officials said. "Libyan production is up and Iraqi exports are on the rise,"said Tamas Varga, oil analyst at London brokerage PVM Oil Associates, saying crude markets were likely to fall further.
US oil markets are particularly weak with a US refinery strike denting demand for crude and domestic production still increasing, despite reports that the number of exploration rigs operating in North America is falling due to lower oil prices.
The number of oil rigs fell by 33 last week to 986, the smallest drop this year, a survey showed.
These diverging trends helped stretch the premium for Brent over US crude CL-LCO1=R to its widest since January 2014 on Friday at US$13 a barrel.
Technical charts point to a further widening of the spread to US$16.98 in the next three months, Reuters market analyst Wang Tao said. "While we expect Brent prices to recover eventually, with our 2016 forecast at US$60/bbl, we do not expect a V-shaped recovery from here," Barclays analysts said in a note. "Prices will have to move lower first, to create a meaningful impact on supply reductions, before the market balances in the first half of the year." A Reuters poll suggests oil prices have probably touched a floor and should recover in the second half of 2015 as the collapse in the market over the last year begins to curb production.