OPEC: Brent crude slipped below $56 bp/d

Oil fell more than $1 a barrel on Monday, as a rise in U.S. drilling and higher Organisation of Petroleum Exporting Countries’ (OPEC’s) output put the brakes on a rally that saw prices score their biggest third-quarter gain in 13 years.

U.S. energy companies added oil rigs for the first week in seven and Iraq announced its exports increased slightly in September when OPEC overall boosted output.

U.S. crude was down $1.40, or 2.7 percent, at $50.27 by 9:31 a.m. ET (1331 GMT). The U.S. benchmark posted its strongest quarterly gain since the second quarter of 2016.

Brent crude, the global benchmark, was down $1.25, or 2.2 per cent, at $55.54 a barrel. It notched up a third-quarter gain of around 20 per cent, the biggest third-quarter increase since 2004 and traded as high as $59.49 last week.

I think it’s going to be a struggle to move above $60 Brent,” said Olivier Jakob, oil analyst at Petromatrix.

Oil’s rally has been driven by mounting signs that a three-year supply glut is easing, helped by a production cut deal by global producers led by the OPEC

“Brent crude oil prices have gone from strength to strength as surplus oil stocks are being depleted,” Bank of America Merrill Lynch said in a report.

“Importantly, this rally is supported by a tighter physical market, providing a fundamental backbone that was not present before.”

But reports found that OPEC oil output rose last month, gaining mostly because of higher supplies from Iraq and also from Libya, an OPEC member exempt from cutting output.

The Libyan gain appears short-lived, though. The country’s largest oilfield, Sharara, has been closed since Sunday, an engineer at the field and a Libyan oil source said.

Middle Eastern oil producers are concerned the price rise will only stir U.S. shale producers into more drilling and push prices lower again. Key OPEC producers consider a price above $60 as encouraging too much shale output.

In February, oil industry sources said Saudi Arabia would like to see oil around that $60 level.

In a sign U.S. oil output could rebound, energy services firm Baker Hughes said on Friday, energy companies added oil rigs for the first week in seven after a 14-month drilling recovery stalled in August.

Technical charts suggest the rally may be running out of steam. Jakob of Petromatrix said Brent’s weekly chart had formed a “shooting star,” a pattern seen as indicating a market has reached a top.