By Julia Simon
NEW YORK (Reuters) - Oil prices fell 1 percent on Monday, with U.S. crude easing from two-year highs on prospects of higher supply, and uncertainty about Russia's resolve to join in extending output cuts ahead of this week's OPEC meeting.
U.S. light crude was down 80 cents or 1.3 percent to $58.15 a barrel by 1:47 p.m. (18:47 GMT) Brent crude was down 10 cents or 0.2 percent to $63.76 a barrel.
Oil prices have surged in recent months due to output cuts by the Organization of the Petroleum Exporting Countries, Russia and other producers. However, higher prices have encouraged greater output among U.S. producers.
OPEC and its allies cut production by 1.8 million bpd in January and have agreed to hold down output until March. OPEC meets on Thursday to discuss policy and most analysts expect a deal to extend the cuts.
On Friday, Russia said it was ready to support extending an output cut deal. Still, Russia has not given a timeline, and on Monday there were signs Russia may find it hard to comply.
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Oil output from Russia's Sakhalin-1 project is set to rise by about a quarter to 250,000-260,000 barrels per day (bpd) from January, sources with knowledge of the plan said.
"It's the OPEC parlour game that we're all playing," said John Kilduff, partner at Again Capital LLC in New York, "The Russians being quiet about their intentions about the OPEC deal is a little unsettling."
Oil markets will rebalance after June 2018 at the earliest, an OPEC working panel concluded last week, OPEC sources said on Monday, signalling the need to extend existing production cuts well into next year.
U.S. crude oil production has risen 15 percent since mid-2016 to 9.66 million barrels per day (bpd), not far from top producers Russia and Saudi Arabia. Rising drilling activity means output should grow further.
U.S. energy firms, encouraged by rising crude prices, added oil rigs last week. The monthly rig count rose for the first time since July.
On Friday, U.S. crude touched $59.05 a barrel, its strongest since mid-2015, buoyed after an oil spill forced closure of the 590,000 bpd Keystone pipeline connecting Canada's oil sand fields with the United States.
The pipeline has leaked substantially more oil, and more often, than indicated in risk assessments the company provided to regulators before operations began in 2010, according to documents reviewed by Reuters.
However some oil traders and analysts expected the Keystone pipeline to restart this week.
Analysts at Barclays expect OPEC to keep output limits for another six or nine months. However, they said this was widely expected, so prices still might fall after the OPEC meeting.
Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas, also saw "plenty of room for disappointment."
"Should the outcome of the next OPEC meeting fall short of expectations, the large net-long speculative position on oil futures can unwind, sending prices lower and volatility higher."
(Additional reporting by Christopher Johnson in London, Henning Gloystein in Singapore; Editing by David Gregorio, Edmund Blair and Mark Potter)