By Alex Lawler
LONDON (Reuters) - Oil fell to around $65 a barrel on Tuesday, pressured by the possibility that U.S. shale oil producers could increase drilling activity and by a stronger dollar.
The dollar could rally further, Morgan Stanley said, adding to a growing list of headwinds crude faces that include rising OPEC supply. Goldman Sachs said oil prices were at a level that would spur U.S. producers to boost activity.
Brent crude was down 54 cents at $64.98 a barrel at 0828 GMT, while U.S. crude, also known as WTI, was 36 cents lower at $59.36.
"We believe that should West Texas Intermediate prices remain near $60 a barrel, U.S. producers will ramp up activity, given improved returns," Goldman said in a report.
That would lessen the prospect of a tighter oil market in coming months, one of the factors that have helped Brent rise from a near six-year low close to $45 in January.
A stronger dollar makes dollar-priced commodities more expensive for buyers using other currencies, and tends to weigh on oil prices. The dollar hit a one-month high against a basket of major currencies on Tuesday.
"The USD downward correction is complete," Morgan Stanley said in a report. "A stronger dollar would only reinforce our near-term concerns for oil prices, especially Brent."
Brent collapsed from $115 in June 2014 due to ample supplies in a decline that deepened after OPEC last November dropped its policy of cutting output to support prices, in a bid to slow higher-cost competing supply sources such as U.S. shale.
Taking turns in dominating sentiment since then are concerns about ample supplies currently and the prospect of a tighter market ahead as supply growth from higher-cost producers slows.
The Organization of the Petroleum Exporting Countries gathers on June 5. On Sunday, Iran said OPEC was unlikely to change its production ceiling at the meeting.
(Editing by Dale Hudson)
