Oil fell more than $1 a barrel to below $56 on Monday as a rise in U.S. drilling and higher OPEC output put the brakes on a rally that helped prices to register 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 rose slightly in September while OPEC overall boosted output, a Reuters survey showed.
Brent crude, the global benchmark, was down $1.02 at $55.77 a barrel at 1310 GMT. It notched a third-quarter gain of about 20 percent, 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.
U.S. crude was down $1.22 at $50.45. The U.S. benchmark posted its strongest quarterly gain since the second quarter of 2016.
The rally was driven by mounting signs that a three-year supply glut is easing, helped by a production cut deal among global producers led by the Organization of the Petroleum Exporting Countries.
“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 a Reuters survey on Friday found 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, however. 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.
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.