By Scott DiSavino
NEW YORK (Reuters) - Oil futures gained about 1% on Monday on hints the Organization of the Petroleum Exporting Countries (OPEC) and its allies may agree to deepen output cuts at a meeting this week and as rising manufacturing activity in China suggested stronger demand.
Brent futures for the most active contract for February delivery rose 43 cents, or 0.7%, to $60.92 a barrel, while U.S. West Texas Intermediate (WTI) crude gained 79 cents, or 1.4%, to $55.96.
Oil eased off session highs earlier in the day as Wall Street dropped after data showed U.S. factory activity contracted in November and after U.S. President Donald Trump unexpectedly announced plans to reimpose tariffs on steel and aluminum from Argentina and Brazil.[.N]
Trump "accused both countries of manipulating their currencies to the detriment of U.S. farmers, once again employing the one-size-fits-all approach to trade matters," Craig Erlam, senior market analyst at OANDA Europe, said in a report.
OPEC and allied producers including Russia are expected to extend output cuts this week and could trim an additional 400,000 barrels per day (bpd) or more, two sources said. OPEC's ministers will meet in Vienna on Thursday and the wider OPEC+ group will gather on Friday.
"There is a discussion about a deeper cut taking place," an OPEC source said, citing forecasts for "a big stock build in the first half of the year - we need to keep an eye on that."
The OPEC+ group's deal to cut supply by 1.2 million bpd started in January and expires at the end of March. It is not certain OPEC+ will agree to deepen its curbs. Some in the group are wary measures to support prices will encourage more U.S. production.
The "Saudis appear intent on maintaining extant output reductions while extending agreement through the middle of next year," Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a report.
"Any sign of discontent between the producers will send out negative signals and will put significant downward pressure on the oil price," said Tamas Varga of oil broker PVM. "We believe this is unlikely to happen."
U.S. output in September increased to a record 12.46 million bpd, according to a government report on Friday.
"A deeper cut could boost prices, which would bring on more shale output and not help," the OPEC source said.
Supporting oil prices was an unexpected return to growth in Chinese factory activity in November as domestic demand picked up on Beijing's accelerated stimulus measures.
(Additional reporting by Alex Lawler in London and Aaron Sheldrick in Tokyo; Editing by Marguerita Choy and Lisa Shumaker)