By Dan Molinski
-- Oil prices fell Monday on the possibility the U.S. and Russia -- two of the world's top oil producers -- will increase output and beef up recently tight global supplies.
-- West Texas Intermediate futures, the U.S. oil benchmark, ended 0.8% lower at $63.40 a barrel on the New York Mercantile Exchange. Prices hit a five-month closing high of $64.61 a barrel last Wednesday, but have closed below $64 each day since then.
-- Brent crude, the global oil benchmark, closed 0.5% lower at $71.18 a barrel on London's Intercontinental Exchange.
Russia: Selling pressure Monday came from a weekend report indicating Russia may decide to abandon a December agreement with the Organization of the Petroleum Exporting Countries to reduce oil production. "There is a dilemma. What should we do with OPEC: Should we lose the market, which is being occupied by the Americans, or quit the deal?" Russian Finance Minister Anton Siluanov was quoted as saying Saturday, according to Russian news agency TASS.
Despite that apparent threat by Russia to end the deal, Carlo Alberto De Casa at brokerage ActivTrades said Monday's declines are likely just a pause in an otherwise bullish trend for oil prices. "The main trend is still positive, but some investors are taking profit," he said.
U.S. Output: Meanwhile, fresh U.S. data seemed to confirm Russia's fears that U.S. production is soaring and taking away market share from those adhering to the production-cut agreement. The Energy Information Administration, in its monthly Drilling Productivity Report, said crude-oil production from the main U.S. shale regions including Texas' Permian Basin is set to rise to a record 8.5 million barrels a day next month, compared with 8.4 million barrels a day in April, and less than 7 million a year ago.
Also, Baker Hughes rig-count data Friday showed a second-straight weekly increase in the number of active oil rigs in the U.S., after six straight weeks of declines. The rig count is used to gauge future oil-production, so it may suggest that U.S. oil producers are once again being motivated by higher prices to ramp up output, with U.S. production already at a record-high 12.2 million barrels a day.
But many analysts said the rig-count uptick may not last, with some noting the overall oil-and-gas rig count fell again last week. "The U.S. [oil-and-gas] rig count has now declined seven of the last eight weeks, and we think it will continue to drift lower over the next few months as operators shift their focus to [oil well] completions and maintaining capital discipline," said analysts at Seaport Global in a research note.
Brent $82?: Energy analysts at Bank of America Merrill Lynch said in a research note Monday that they are maintaining their view that Brent crude oil could hit $82 by late June, in part because of new sulfur regulations for shipping fuels, known as IMO 2020, to make them more environmentally friendly.
"The end of the Fed's monetary policy tightening cycle, coupled with a very steep drop in OPEC-plus oil production, kept us bullish on global crude oil prices," they said. "Now, with distillate inventories at the low end of the range, we see an analogy to 2007/08 when the world ran out of diesel refining capacity. Back then, as Saudi Arabia lifted heavy crude production to meet rising global demand for distillates, diesel-to-bunker fuel spreads blew out and so did light-heavy crude spreads. A similar situation could develop over the coming months as shipowners temporarily up their distillate burn to transition out of high sulphur into ultra low sulfur bunker fuel due to the new IMO 2020 rules."
-- The EIA is due to release its weekly numbers on U.S. oil inventories on Wednesday morning.
Write to Dan Molinski at Dan.Molinski@wsj.com