By Henning Gloystein
SINGAPORE (Reuters) - Crude oil prices edged down on Tuesday, with their recent rally pressured by a stronger U.S. dollar and the possibility of rising U.S. shale output.
Front-month Brent crude prices were down 21 cents at $65.31 per barrel at 0631 GMT. U.S. crude was 13 cents lower at $59.59 a barrel.
"We believe that should West Texas Intermediate prices remain near $60 a barrel, U.S. producers will ramp up activity, given improved returns, with costs down by at least 20 percent," Goldman Sachs said.
Morgan Stanley said on Tuesday that a stronger dollar had been weighing on oil prices, which would likely be the start of a new trend.
The dollar hit a one-month high against a basket of major currencies on Tuesday after stronger-than-expected underlying U.S. inflation bolstered the Federal Reserve's case for an interest rate hike later this year. The rally followed a 7 percent fall between mid-March and mid-May.
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Brent crude, in contrast, rallied more than 25 percent between March and mid-May, but has moved largely sideways since.
London-based Timera Energy also said the recent oil rally had run out of steam because WTI prices were reaching levels at which producers could operate profitably, and that the surging dollar would put pressure on oil.
"The fact that WTI prices are approaching LRMC (long-run marginal cost) benchmarks for new investment suggests to us that the recent rally in oil prices may not have much further to run," Timera said.
"If this is correct, then the U.S. dollar is likely to provide a useful indicator as to the next move lower in crude prices. If the U.S. dollar resumes its climb, then oil prices will likely face strong headwinds."
(Editing Alan Raybould and Joseph Radford)