OPEC RESTRAINT

UAE set to meet its obligations over sixmonth deal period

International Energy Agency sees ‘strong’ compliance with output cuts,

The International Energy Agency said it saw strong compliance from Opec and supporting countries in the first month of their output restraint deal, and it increased its forecast for oil demand slightly this year.

The body warned that the supply glut would persist as higher oil prices entice supply growth.

In the first major independent report on the 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 six-month period.

Overall, the IEA estimates Opec produced at just over 32 million barrels per day (bpd) last month, well under the 32.5m bpd target.

For the 11 Opec countries that pledged restraint – with Libya and Nigeria exempt – 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 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 allowed to increase its production, but the IEA reckoned it has not yet reached the target output of 3.8m bpd and produced 3.75m bpd last month.

Some other countries did not achieve their cuts levels – this in- cluded the UAE, which produced 2.96m bpd versus a pledged level of 2.7m bpd, but it is expected to bring forward oilfield maintenance to March and April that will allow it to reach its output target over the six-month period.

Likewise, Russia – which has pledged a 300,000 bpd cut – reduced output by 100,000 bpd last month, the IEA estimated.

The watchdog revised up its demand growth estimate for last year for a third month in a row.

This was a result of strong industrial expansion and a relatively cold winter in the northern hemisphere. It estimated 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 last forecast.

The IEA expected the output cuts and demand growth to eat into the glut, but said stockpiles remained 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 about 300m barrels above their five- year average at the end of last year, despite five months of heavy drawdowns.

The IEA said also that higher oil prices – with world benchmark up at an average of about $52 a barrel this year compared to $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 nonOpec producers 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 concluded.