Paris (AFP) – OPEC countries are complying with a landmark deal to reduce a worldwide glut in oil, but it will take some time yet before the oil market feels the full impact of the reduction in output and prices stabilise, the International Energy Agency said on Wednesday.
“The implementation of the OPEC production agreement appears in February to have maintained the solid start seen in January, the IEA said in its latest monthly report.
“OPEC kept up robust adherence to its … supply cut. For the first two months of the deal the compliance rate averaged 98 percent,” it said, adding that “global oil supplies rose in February as (both) OPEC and non-OPEC producers pumped more.”
At the end of November, the Organization of Petroleum Exporting Countries agreed to cut output by 1.2 million barrels per day (bpd) from January 1, initially for a period of six months.
Then in December, non-OPEC producers led by Russia agreed to cut their own output to 558,000 bpd.
The aim was to reduce a glut in global oil supply that has depressed prices, which currently stand at around $48-$51 per barrel.
Nevertheless, global oil supplies increased by 260,000 bpd to 96.52 million bpd in February, the IEA calculated.
OPEC increased output by 170,000 bpd to 32 million bpd and non-OPEC oil production increased by 90,000 bpd to 57.8 million bpd, largely due to higher US output.
This meant that OPEC’s compliance rate with the agreed output cut stood at 91 percent, down from 105 percent in January.
And after a compliance rate of 40 percent in January for the 11 non-OPEC countries, there was still little information available on production levels in February, the IEA said.
Nevertheless, the non-OPEC output was seen “slightly higher following rising output from Kazakhstan and Sudan/South Sudan and with Russian production essentially unchanged,” it added.
– Shouldering the burden –
The IEA said that Saudi Arabia was shouldering the bulk of the cuts in overall OPEC production and while it actually increased output by 180,000 bpd to 9.98 million bpd in February, it kept below the agreed limit of 10.06 million bpd.
“The market needs time for the full impact of the big supply cuts under the output reduction agreements to be felt,” the report said.
“If current production levels were maintained to June when the output deal expires, there is an implied market deficit of 500,000 bpd for the the first half of 2017, assuming, of course, nothing changes elsewhere in supply and demand,” the agency stated.
“It is unclear at this stage whether OPEC will extend its six-month supply pact to the end of the year,” the IEA said.
“For those looking for a re-balancing of the oil market the message is that they should be patient, and hold their nerve. In the meantime, the volatility that suddenly broke out last week will probably recur, as the IEA has regularly warned.”
Investors are nervous because of a surprisingly big jump in US stockpiles reported last week and increased shale production.
Overall, OECD stocks jumped for the first time in six months in January, increasing by 48 million barrels to 3.03 billion barrels “and preliminary data for February suggests they have fallen back again only modestly,” the IEA said.
Turning to demand, the IEA estimated that “having expanded by 1.6 million bpd in 2016, global oil product demand growth is forecast to decelerate to 1.4 million bpd in 2017.”