Oil prices edged up on Monday on supply concerns in the Middle East following fighting in Iraq and Yemen, but signs of strengthening US production capped gains.

Front-month Brent futures were up 9 cents at $66.90 a barrel by 0311 GMT. US crude rose 6 cents to $59.75.

Price were supported by concerns that conflict in Iraq and Yemen could disrupt production or supply routes.

Islamic State militants said they had taken full control of the western Iraqi city of Ramadi in the biggest defeat for the Baghdad government since last summer.

A Saudi-led coalition resumed air strikes against Yemen's Houthi militia in Aden, a port-city on the shores of key Middle East oil tanker routes, after a five-day truce expired.

Despite the conflict in the Middle East, analysts said that oil markets remained well supplied, and that the glut could worsen if US-production picked up.

"Markets (are) starting to worry that prices over $60 per barrel will encourage US shale production," ANZ bank said.

"The declines in rig counts appear to be losing momentum, with a drop of only 8 to 660 rigs, the smallest fall in 23 weeks. Reports suggest certain shale formations (such as Eagle Ford and Bakken) are starting to add rigs, which is further weighing on sentiment," it added.

Goldman Sachs said that despite an expected dip in the second-half of this year, US oil output would increase by 205,000 barrels per day in 2016.

Analysts said that most producers required higher prices to level their budgets, even with a recent rise in oil prices.

Deutsche Bank said that of major producers only the United Arab Emirates, Qatar and Kuwait would still have a balanced budget at current prices, while almost all other big producers required more expensive oil in order to level their books.

The bank said that emerging market exporters were particularly hard hit.

"With only two or three exceptions, the price of oil has fallen below the levels that will be needed to balance government budgets in the major emerging market oil producers this year," the bank said.

"With forward markets suggesting that the drop in prices is more permanent than temporary, a period of adjustment will therefore be necessary."

Brent for delivery in May 2017 is only $4 per barrel more expensive than spot prices, implying an expectation that prices will not rise sharply soon. – Reuters