Oil prices fell 1 percent on Monday as signs of a strong recovery in U.S. drilling largely overshadowed news that OPEC and non-OPEC producers were on track to meet output reduction goals.
Ministers representing members of the Organization of the Petroleum Exporting Countries and non-OPEC producers said at a meeting in Vienna on Sunday that of the almost 1.8 million barrels per day (bpd) they had agreed to remove from the market starting on Jan. 1, 1.5 million bpd had already been cut.
"Despite comments over the weekend at the OPEC compliance meeting that cuts in OPEC/non-OPEC production were ahead of schedule, a sharp rise in U.S. rig counts and talk of large increases in capital spending seem to be souring the bullish mood," said Phil Flynn, analyst at Chicago-based brokerage Price Futures Group.
U.S. drillers added the most rigs in nearly four years last week, data from energy services company Baker Hughes showed on Friday, extending an eight-month drilling recovery.
Brent crude (LCOc1) settled down 26 cents, or 0.5 percent, at $55.23 a barrel. U.S. crude futures (CLc1) closed the session at $52.75 a barrel, down 0.9 percent, or 47 cents.
Prices pared some losses after Iraq's oil minister said it was too early to say whether the deal needed to be extended and that he expected oil prices to rise to $60-$65 per barrel.
From a technical perspective, both contracts remain – for the time being – above their respective key support levels, said Fawad Razaqzada, technical analyst for Forex.com.
The trend therefore remains bullish for oil until the charts say otherwise, he added.
U.S. oil production has risen by more than 6 percent since mid-2016, though it remains 7 percent below the 2015 peak. It is back to levels of late 2014, when strong U.S. crude output contributed to a crash in oil prices.
"There is a widely held view that prices should be higher because that is what Saudi Arabia is strongly pushing for through immediate supply cuts, but there is concern as to the speed and scale of the response of U.S. shale oil supply to higher prices," Standard Chartered said in a note.
"While we have argued that U.S. shale cannot increase fast enough to balance cuts in production elsewhere, we think that market concerns on the potential U.S. response are still providing short-term resistance to prices heading closer to $60."
U.S. President Donald Trump has pledged to impose a hefty border tax on companies that want to import products to the United States.
Oil market speculators added to bullish bets last week, showing increased optimism about higher prices.
However, a record high gross long position among money managers in NYMEX crude oil futures and options leaves the market ripe for a correction, traders said.
(Additional reporting by Karolin Schaps in London, Naveen Thukral and Henning Gloystein in Singapore; Editing by David Goodman and Lisa Shumaker)