Oil prices fall as production creeps up ahead of announced 2017 output cut

Oil prices fell by one percent on Monday as a higher U.S. rig count unsettled markets amid nagging concern that output cuts, planned as part of concerted action between producer club OPEC and Russia, might not be as big as initially anticipated.

International Brent crude futures LCOc1 were trading at $53.95 per barrel at 0751 GMT, down 51 cents, or almost 1 percent, from their last close.

West Texas Intermediate (WTI) crude futures were at $51.18 a barrel, down 50 cents, or 1 percent.

Traders said price falls were triggered by rising production just after last week’s accord between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member Russia to cut output in 2017. The cuts aim to rein in a supply glut that has weighed on markets for over two years.

“Export levels may remain elevated…if countries step on the gas in December and fill their storage,” Barclays bank said on Monday.

Russia on Friday reported average daily oil production of 11.21 million bpd for November – its highest in almost 30 years.

And while Moscow has agreed to cut its output by 300,000 bpd in early 2017, it said it would do so against November levels. That means that even after a reduction, its output would remain higher than it was at the peak of the oil glut in the first half of 2016.

In the Middle East, where the deepest OPEC production cuts are expected, there are also signs that production will rise before it gets cut.

Saudi Arabia and Kuwait are expected to agree this month to resume oil production in the Neutral Zone between both countries, with a potential of 300,000 barrels in daily output, from jointly operated oilfields which were shut down between 2014 and 2015 for environmental and technical difficulties.

“If (Saudi) King Salman follows through on reports that he will restart part of the Neutral Zone, output from the region might just remain unchanged,” Barclays said.

Adding to potential rises in production, U.S. energy firms extended drilling for new oil production into a seventh month last week, data from energy services firm Baker Hughes showed on Friday. <RIG/U RIG-OL-USA-BHI>.

Overall – accounting for the recent rise in oil drilling, but also for cutbacks earlier this year on low prices – Goldman Sachs said “year-on-year production will decline by 620,000 barrels per day (bpd) in 2016 and increase by 55,000 bpd in 2017”.