Oil slips after hitting 2015 high above $67

By Alex Lawler

LONDON (Reuters) - Oil eased towards $66 a barrel on Monday after reaching a 2015 high, as ample current supplies and weak Chinese factory activity countered expectations of a tighter supply and demand balance later this year.

The collapse of oil prices in 2014 has prompted expectations that supply growth in higher-cost crude producers such as the United States will slow. On Friday, oil services firm Baker Hughes Inc. said the number of U.S. active rigs had fallen for a record 21 weeks in a row.

Brent crude slipped 15 cents to $66.31 a barrel by 1331 GMT, after hitting a 2015 peak of $67.10. U.S. crude lost 23 cents to $58.92. The U.S. benchmark hit its highest this year at $59.90 on May 1.

"The market is expecting the tightening in the second half of the year," said Eugen Weinberg, analyst at Commerzbank.

"We argue this dynamic is hardly fundamentally sound," he said of the market's rally. "There has yet to be any noticeable drop in U.S. oil production."

A public holiday in Britain on Monday limited trading volume.

Brent has rallied more than 40 percent from a near six-year low of $45.19 in January, supported by expectations of tighter future supply and demand balance, as well as a weaker dollar and Middle East tension.

A business survey showed activity at China's factories shrank in April at its fastest pace for a year as new orders fell, hardening the case for policy stimulus to boost the world's second biggest economy.

"The Chinese data is weaker but it seems the oil market has had a limited reaction. What the market really wants to see is supply being cut to match the demand level," said Ric Spooner, chief market analyst at Sydney's CMC Markets.

Oil's collapse in 2014 was due to ample supply and the refusal by the Organization of the Petroleum Exporting Countries (OPEC) to cut output. OPEC shifted its strategy in a bid to slow competing supply sources, such as the United States, to defend its market share.

Weighing on prices were the latest signs that supply is still plentiful, including higher Libyan exports, record Iraqi exports in April and OPEC oil output at its highest in 2-1/2 years.

A stronger dollar also made dollar-denominated commodities more expensive for holders of other currencies, which tends to weigh on oil prices.

(Additional reporting by Jane Xie; Editing by Ruth Pitchford and David Clarke)