Oil prices edged lower on M onday in tug-of-war trading as Spain's fall into recession and slowing U.S. Midwestern business activity countered supportive expectations for more Federal Reserve action to stimulate a sluggish U.S. economy. U.S. crude's 6-cent price dip snapped a string of six higher settlements, but still allowed front-month crude to post a 1.8 percent monthly gain. Brent ended April with a nearly 3 percent loss, after three straight monthly gains.

Brent's premium to U.S. crude has been lowered by reduced tensions about Iran's nuclear program after talks with major powers restarted mid-month and by an upcoming U.S. pipeline reversal expected to relieve a bottleneck and high Midwest inventories that have hemmed in U.S. crude prices.

Brent June crude fell 36 cents to settle at $119.47 a barrel, having traded from $118.73 to $119.79. For the month, Brent fell $3.41 or 2.78 percent. U.S. June crude dipped 6 cents to settle at $104.87, after recovering from a $103.88 low and reaching $105.16 a penny below the 50-day moving average (MA) of $105.17. U.S. crude prices have met resistance near the 50-day MA after finding support intraday near the 100-day MA early last week.

The Brent-U.S. crude spread narrowed 30 cents to $14.60 based on settlements, after Brent's premium reached $15.37 intraday. Total Brent crude trading volume narrowly outpaced U.S. turnover, but volumes were light for both and they lagged their 30-day averages by more than 20 percent.

Trading volumes were expected to be reduced ahead of the May Day bank holiday across much of Europe on Tuesday. Expiring U.S. May RBOB gasoline slipped and went off the board at $3.1844 a gallon, only 0.02 cent above May heating oil, which managed to end the day higher. U.S. gasoline posted a 6 percent loss for the month, the first monthly loss for the month of April since the late 2005 launch of the RBOB contract.

Travel group AAA on Monday pegged the U.S. average gasoline price at $3.816 per gallon, down more than 4 cents in a week and off nearly 11 cents from a month ago. James Zhang, energy analyst at Standard Bank, said the market was in a cautious mood ahead of a heavy week for U.S. data releases.

"The market is undecided, but if anything there is a slightly bearish bias given that the weekly U.S. jobless (claims) report has disappointed over the last few weeks. That potentially points to a downbeat nonfarm payroll report on Friday," he said. But he added that signs of weakness in U.S. data also raise the possibility of another round of monetary easing, seen as supportive to dollar-denominated commodities.

Investors await Friday's U.S. April nonfarm payrolls report after last week's slower-than-expected U.S. first quarter GDP reading reinforced expectations that the Fed might ease monetary policy further to stimulate a sputtering recovery. A recovery in the dollar index on Monday, after it hit a two-month low, and a survey result pointing to OPEC crude oil production rising to the highest level since 2008 also weighed on oil prices.

Spain fell into recession in the first quarter and economists said austerity measures to meet strict EU deficit limits and a reeling bank sector would delay a rebound until late 2012 or beyond.

Also weighing on oil prices, a gauge of Midwestern business activity fell sharply and U.S. consumers boosted spending only modestly in April.

OPEC output in April hit its highest level since 2008, a Reuters survey found on Monday. Increased output from Iraq, Saudi Arabia and Libya more than compensated for the lowest Iranian supply in two decades ahead of a European Union embargo on Tehran's oil set for July, according to the survey.

Rising crude oil stockpiles in the United States, the rest of OPEC's ability to make up for sanctioned Iranian crude and easing U.S. gasoline pump prices may lessen the urgency for plans for release of Western strategic petroleum reserves.

(Additional reporting by Claire Milhench in London and Florence Tan in Singapore; Editing by Marguerita Choy and Sofina Mirza-Reid)