The International Energy Agency said it sees strong compliance from Opec and supporting countries in the first month of their output restraint deal, and it increased slightly its forecast for oil demand this year, but it also warned that the supply glut will persist as higher oil prices entice supply growth.
In the first major independent report on the oil market since Opec and 11 other countries implemented a deal to restrain their production, the Paris-based energy watchdog estimated that compliance with those cuts last month was a record 90 per cent.
“This first cut is certainly one of the deepest in the history of Opec output cut initiatives,” said the IEA, noting the agreement requires the cuts to run for an initial period of six months.
Overall, the IEA estimates Opec produced at just over 32 million barrels per day (bpd) last month, well under the target level of 32.5m bpd.
For the 11 Opec countries that pledged restraint — with Libya and Nigeria exempted — the IEA estimated that the total cut in January, the first month of the deal, was just over 1 million bpd, to 29.93m bpd.
Saudi Arabia led the initiative last year and substantially exceeded its pledged cut last month, producing just below 10m bpd for a cut of 560,000 barrels, 16 per cent more than target.
Iran was actually allowed to increase its production under the deal but the IEA reckons it hasn’t yet reached the target output level of 3.8m bpd and produced 3.75m bpd last month.
Some other countries did not achieve their cuts levels — this included the UAE, which produced 2.96m bpd versus a pledged level of 2.7m bpd, but it is expected to bring forward planned oilfield maintenance to March and April which will allow it to reach its output target over the six-month period.
Likewise, Russia, which has pledged to cut by 300,000 bpd cut by 100,000 bpd last month, the IEA estimates.
On the demand side, the watchdog revised up for the third straight month its demand growth estimate for last year because of strong industrial expansion and a relatively cold winter in the northern hemisphere. It estimates demand grew by 1.6m bpd last year and it forecast demand growth this year of 1.4m bpd, up 100,000 bpd from its previous forecast.
The IEA said it expects the output cuts and demand growth to eat into the world oil glut, but noted that stockpiles remain near record levels.
“If the January level of compliance is maintained, the difference between global demand and supply implies a stock draw of 600,000 bpd, [but] It should be remembered that this stock draw is from a great height,” with developed country stocks still some 300m barrels above their five-year average at the end of last year, despite five months of big drawdowns.
The IEA said also that higher oil prices — with world benchmark up at an average of about US$52 a barrel so far this year versus $44 last year — is bringing on additional output in the US shale sector, as well as Canada and Brazil.
Output from those three countries is expected to grow by 750,000 bpd this year, which means net growth from non-Opec of 400,000 bpd even after accounting for the cuts, the IEA said.
“The oil market is very much in a wait-and-see mode,” the watchdog concludes.