'Longer, heftier oil production cuts needed'

Falih said recent price falls had been caused by the low demand season and refinery maintenance, as well as by non-OPEC production growth, especially in the United States. Brent contracts for the same month, the global benchmark, were seen 0.70% higher at $49.44 per barrel.

In the research note entitled Oil Nearing Capitulation, Goldman Sachs said there was "growing evidence of the ability of USA shale to respond near $50 per barrel and the availability of capital to support such activity", according to MarketWatch.

US crude production is expected to rise by more than previously expected in 2017 to 9.31 million barrels per day from 8.87 million bpd in 2016, a 440,000 bpd increase, the US Energy Information Administration said.

From a bullish perspective, Falih confirmed Saudi Arabia and other oil producers are prepared to do "whatever it takes" to bring global crude inventories back to the five-year average.

Meanwhile, the price for June futures of West Texas Intermediate (WTI) has grown by 0.44 percent and stood at $46.56 per barrel. While Goldman Sachs Group Inc. and Citigroup Inc. see the market tightening and say the recent selloff wasn't based on fundamentals, concerns remain about the pace of rising USA supply.

An agreement led by the Organization of Petroleum Exporting Countries to calm the market with managed production declines has created economic conditions supportive of USA shale oil production gains, which is capping any major rally in crude oil prices.

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"The fundamentals haven't improved because the world is still awash with oil", said a Singapore-based crude trader, noting the upsurge in US shale production and exports, especially to Asia, is making it tougher for OPEC to compete.

"There's a growing conviction that a six-month extension may be needed to rebalance the market, but the length of the extension is not firm yet", Saudi Arabia's OPEC Governor Adeeb Al-Aama told Reuters on Friday.

Markets are close to assuming that OPEC will extend the production cuts for the second half of 2017 and there will be the risk of further heavy selling pressure if it appears that there is a breakdown in support for a short-term extension in output curbs. The report showed that Saudi Arabia's crude exports declined from 7.7 million barrels per day in January to 6.96 barrels per day in February.

The agreement, implemented on Jan 1, sought to cut production by 1.2 million bpd for the first half of 2017, with non-Opec countries agreeing to cut output by 556,000bpd.

"If OPEC announces a production cut, the surprise leads to an upward adjustment in prices ..."

  • Eleanor Harrison