NEW YORK, Dec 4 (Reuters) - Oil fell more than 1 percent on Monday on profit-taking as the market eyed signs of rising U.S. production, though prices remained close to recent two-year highs thanks to last week's decision by OPEC and other producers to extend output cuts.
Brent crude futures settled down $1.28, or 2 percent, at $62.45 a barrel. U.S. West Texas Intermediate futures were down 89 cents, or 1.5 percent, at $57.47.
Brent hit a two-year high of $64.65 a month ago and has since attracted record investment by fund managers. Hedge funds and money managers also boosted bullish wagers on U.S. crude to the highest on record.
"Managed money is very long - both futures and options," said Tony Headrick, energy market analyst at CHS Hedging. "If the bulls are not fed, we're subject to a bit of profit-taking that I think we're seeing today."
John Kilduff, a partner at Again Capital Management in New York, said the market could correct slightly, pulling further downward.
"We're in a situation where there might not be much more ammunition on the bullish side," he said.
The market is continuing to watch U.S. crude production, which is nearing a record high, according to data last week. .
U.S. output rose in September to 9.5 million barrels per day (bpd), the highest monthly output since 2015, government data shows. On an annual basis, U.S. output peaked at 9.6 million bpd in 1970.
Additionally, drillers in the United States added two oil rigs in the week to Dec. 1, bringing the total count to 749, the highest since September, energy services company Baker Hughes said on Friday. <RIG-OL-USA-BHI>
The U.S. rig count, an early indicator of future output, has risen sharply from 477 active rigs a year ago after energy companies boosted spending plans for 2017.
"Even higher prices are likely to be precluded by news from the U.S., where drilling activity is being stepped up," said Commerzbank analyst Carsten Fritsch.
U.S. producers were encouraged during 2017 to increase activity as crude prices started recovering from a multi-year price slump after the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers, including Russia, agreed to production cuts a year ago.
Last week the producers agreed to extend those cuts of 1.8 million bpd until the end of next year.
"Market reaction has been positive so far. There are only two worrying aspects .... One is that Iraq's indiscipline has not been discussed, at least not publicly," PVM Oil Associates strategist Tamas Varga said, referring to Baghdad's compliance with output cuts.
A Reuters survey of output from the 13 OPEC members indicated production fell by 300,000 bpd in November. Supply from the 11 members with production targets under the original accord fell by 230,000 bpd.
The latest agreement allows for producers to exit the deal early if the market overheats. Russian officials had expressed concern that extending the cuts might encourage U.S. shale oil companies, which have been a thorn in OPEC's side, to pump more crude.
(Additional reporting by Aaron Sheldrick in TOKYO and Emily Chow in KUALA LUMPUR and Amanda Cooper in LONDON and Jessica Resnick-Ault in New York; Editing by Marguerita Choy and Richard Chang)