IEA: OPEC Maintains Cuts in Production
OPEC has reached its best rate of compliance in its history at the start of the cartel’s accord to end the oil glut, which is a plan that has been supported by strength in demand that surprised many said the International Energy Agency (IEA).
OPEC implemented 90% of the promised cuts in output during January, the first full month of the agreement, as its biggest member Saudi Arabia lowered its production even more than it committed to, said the IEA.
Resilient demand in oil is helping the bid by OPEC to re-balance the oil markets around the world, growing more than had been expected in 2016 and positioned to do the same during 2017.
OPEC has made a strong start to the process it says will take six months, said IEA, which is based in Paris and advises most of the major economies of the world on energy policies.
Russia and OPEC are the two leading the push by worldwide oil producers to bring an end to the three-year surplus of oil that depressed prices and hit hard the economies of nations that are energy exporters.
While the pact at OPEC initially caused a rally of 20% in the price of oil, gains have faltered since, on concern that shale drillers in the U.S. would revive their output and thus undo the efforts of OPEC.
The IEA raised its estimates for 2016 for growth in global oil demand for the third month and increased its outlook for all of 2017, as it anticipates an increase in of barrels per day in 2017 of 1.4 million
Inventories worldwide of oil will drop per day by 600,000 barrels during the first six months of 2017 if OPEC holds to the agreement, said IEA officials.
While industrialized nations’ stockpiles have dropped for the past five months, and fell during the final quarter of 2016 by more than any other time in three years, they are still significantly higher than average levels.
OPEC has been joined by 11 nations that are non-members including Kazakhstan and Russia, who collectively have agreed to lower supply per day by 558,000 barrels.
While IEA did not release an estimate for overall compliance amongst the countries during January, the projections it has released assume a curtail in output.
Even if the reductions are reached, overall supply from outside the cartel will go up 400,000 barrels per day in 2017 after dropping in 2016, due to increases by Brazil, Canada as well as the U.S.