"The fundamentals haven't improved because the world is still awash with oil", said a Singapore-based crude trader, noting that the upsurge in US shale production and exports, especially to Asia, is making it tougher for OPEC to compete.
Oil prices gave up early gains on Monday, as the market weighed news from OPEC and other producers about prolonging output cuts against data showing the recovery in US drilling had extended for a year.
However, oil producers are determined to reach their goal of reducing oil supply and is confident that the oil market will move towards rebalancing.
OPEC's original agreement on revised production levels was reached on November 30 past year and always subject to review in the normal way at the organisation's next scheduled ministerial conference on May 25.
Russian Federation said on Monday it was discussing prolonging cuts with other producers beyond 2017, without giving a clear timeline.
Earlier this year, Saudi officials cast doubt on whether an extension would be necessary given high levels of compliance with the agreement. Saudi Arabia's Energy Minister Khalid Al-Falih also talked of the possibility of prolonging curbs beyond 2017.
Since a low point in May 2016, US producers have added 387 oil rigs, or about 123 per cent, Goldman Sachs said. "We don't want to create a shortage or squeeze". At least part of the strength in USA commercial crude stocks is the result of the U.S. government selling oil from its Strategic Petroleum Reserves, ' said the analysis. "We will have to wait two years to get a stable Brent oil price at around $55".
Investors in ICE gasoil futures and options cut their net long position by 42,888 contracts to 61,216 lots, or 6.122 million tonnes of gasoil, in the week to May 2, when the price fell by more than 3 percent to a five-month low around $447 a tonne.
What was new was Falih's willingness to contemplate extending the agreement even further, beyond 2017.
The global oil market will soon rebalance and return to a "healthy state", Al-Falih said at the Asia Oil and Gas Conference on Monday.
From a bearish perspective, Falih admitted what many oil analysts have been saying: market rebalancing is taking longer than expected at the start of the year. Ministers will meet again in Vienna on 25 May to make the final decision on any extension.
In the past, oil prices have risen significantly in the aftermath of an announcement by OPEC that it is cutting production, according to researchers, who examined all OPEC announcements between 1983 and 2008.
As a result, Capital Economics is sticking with its end-2017 forecasts of 60 per barrel for Brent and 58 per barrel for Western Texas Intermediate (WTI), although, the company cautions that prices are likely to be especially volatile over the next few months. "However, if they maintain the status quo, the market takes this as a failure to agree on a production cut and therefore adjusts prices downward".