Oil eased toward $68 a barrel on Monday, after a decision by a major U.S. commodities exchange to enforce limits on large positions increased uncertainty and the dollar strengthened slightly.

U.S. crude for October delivery fell 58 cents to $68.72 a barrel by 1140 GMT, off a session low of $68.02. London Brent crude fell 25 cents to $67.44 a barrel.

The Chicago Mercantile Exchange on Friday pledged to enforce existing position limits on NYMEX, CME, and other exchanges as of September 14.

Traders who are over the position limits would face fines or could be found guilty of price manipulation unless they get a hedge exemption, according to an advisory notice by the CME.

There's a little bit of concerns or question marks about the CME notice on position limits... with effective date of today, said Olivier Jakob of Petromatrix in Switzerland.

That might have made the market a little bit nervous and I would expect that the market is going to remain a little bit cautious until we can see through this notice.

Some oil traders told Reuters they interpreted the advisory as a CME warning it could soon toughen up its enforcement of position limits on commodities exchanges and potentially offer fewer exemptions for exceeding those limits in the future.

DOLLAR, OPEC

Oil fell more than 3.5 percent on Friday, unraveling gains of over 5 percent in the first four sessions of last week when it climbed above $70 a barrel, close to this year's high of $75, hit in August.

Eugen Weinberg, an analyst with Commerzbank, said the dollar and weaker equity markets were adding to pressure on crude prices.

Crude contracts are also following weaker equity markets and a somewhat stronger dollar, Weinberg said.

For much of this year, oil prices have moved in tandem with rising equity markets, which have factored in economy recovery, with implications for fuel demand. They have also drawn strength from a falling dollar.

A weak dollar makes dollar-denominated commodities cheaper for holders of other currencies.

The dollar index <.DXY> edged higher on Monday, recovering from a year-low of 76.457 points against a basket of six other major currencies, while European equities <.FTEU3> were down more than 1 percent. <.E>

For graph on the link between oil and equities, please click on http://graphics.thomsonreuters.com/099/CMD_BRNT20909.gif

Although the dollar recovered slightly on Monday, many analysts still predict it will stay weak.

After the Organization of the Petroleum Exporting Countries last week agreed to keep existing output targets in place, the group's secretary-general said a weak dollar was a concern and the group needed higher average oil prices to step up investment.

(Additional reporting by Osamu Tsukimori in Tokyo; Editing by Barbara Lewis)