NEW YORK: Oil fell more than 1 percent on Monday as the market saw signs of continuing US production increases, though prices remained in sight of their recent two-year highs thanks to last week's decision by OPEC and other producers to extend output cuts.
Brent crude futures fell $1.00 a barrel to $62.73 by 10:40 a.m. EST (1540 GMT), while US West Texas Intermediate futures were down 70 cents at $57.66.
Brent hit a two-year high of $64.65 a month ago and has since attracted record investment by fund managers.
"We're in a situation where there might not be much more ammunition on the bullish side," said John Kilduff, a partner at Again Capital Management in New York. As a result, the market could correct slightly, pulling further downward, he said.
The market is continuing to watch US crude production, which is nearing a record high, according to data last week. .
Additionally, drillers in the United States added two oil rigs in the week to Dec. 1, bringing the total count to 749, the highest since September, energy services company Baker Hughes said on Friday.
The US rig count, an early indicator of future output, has risen sharply from 477 active rigs a year ago after energy companies boosted spending plans for 2017.
"Even higher prices are likely to be precluded by news from the US, where drilling activity is being stepped up," said Commerzbank analyst Carsten Fritsch.
US producers were encouraged during 2017 to increase activity as crude prices started recovering from a multi-year price slump after the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers, including Russia, agreed to production cuts a year ago.
Last week the producers agreed to extend those cuts of 1.8 million barrels per day (bpd) until the end of next year.
"Market reaction has been positive so far. There are only two worrying aspects ... One is that Iraq's indiscipline has not been discussed, at least not publicly," PVM Oil Associates strategist Tamas Varga said, referring to Baghdad's compliance with output cuts.
"The second is OPEC's own forecast for next year. They are by far the most bullish on 2018, with the annual call on their oil at 33.42 million bpd," he said.
The forecast is much higher than those of the US government at 32.70 million bpd and the International Energy Agency's prediction of 32.38 million bpd.
The latest agreement allows for producers to exit the deal early if the market overheats. Russian officials had expressed concern that extending the cuts might encourage US shale oil companies, which have been a thorn in OPEC's side, to pump more crude.
US output rose in September to 9.5 million bpd, the highest monthly output since 9.6 million bpd in April 2015, government data shows. On an annual basis, US output peaked at 9.6 million bpd in 1970.
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