(Credit: Reuters) An oil well pump jack is seen at an oil field supply yard near Denver, Colorado February 2, 2015.

Oil slipped on Monday as a rallying dollar and concerns of growing oversupply weighed on the market after Saudi Arabia reported its highest crude exports in nearly a decade.

Crude oil futures erased early gains of more than $1 a barrel on worries of turmoil in the Middle East after a major advance by Islamic State militants in Iraq and renewed air strikes by a Saudi-led coalition against Houthi militia in Yemen.

The dollar rose more than 1 percent against a basket of major currencies .DXY, its most in three weeks. The 19-commodity, crude oil-dominated Thomson Reuters/Core Commodity CRB Index .TRJCRBTR fell 0.3 percent as the stronger dollar made raw materials denominated in the currency less affordable to holders of the euro and other denomination.

Oil was also weighed down by data showing that Saudi Arabia's crude oil exports rose in March to the highest levels since November 2005, analysts said.

Brent crude LCOc1, the more widely used benchmark, settled 54 cents lower at $66.27, after hitting a high of $67.88. U.S. crude futures CLc1 ended down 26 cents at $59.43 a barrel.

"The fact that the dollar is reasserting its strength on oil despite the major geopolitical tensions in the Middle East shows that not everyone is convinced the oil rally we've had of late should continue," said Tariq Zahir, an oil bear at Tyche Capital Advisors in Laurel Hollow in New York.

Speculators cut their bets on rising Brent crude prices for the first time in two months, data showed on Monday.

Goldman said in a note circulated to its clients on Saturday, and reported by Reuters on Monday, that it expected Brent to trade at $55 a barrel by 2020, versus current levels above $65.

Analysts said oil markets remained oversupplied, and that the glut could worsen if U.S. production picked up while OPEC output remained strong.

Kuwait's OPEC Governor Nawal al-Fuzaia said oversupply in global oil was due to slow demand and a rise in shale oil output, not production by the Organization of the Petroleum Exporting Countries.

Iran's Deputy Oil Minister Rokneddin Javadi told Reuters that OPEC was unlikely to cut output at its June meeting, and that Iran hoped its exports would return to pre-sanctions levels of 2.5 million barrels per day within three months of a deal to lift an oil embargo.