Published: Sat, February 11, 2017
Markets | By Lucia Cruz

Oil Market Still Not Balanced After OPEC Production Cuts

The International Energy Agency and OPEC will publish their monthly oil market reports on Friday and Monday, respectively, which will provide their first full-month production and inventory data since the group's decision to cut supply took effect on January 1. Some producers, including Saudi Arabia, cut supply by more than required, however lower production was partly offset by higher flows from Libya and Nigeria, which are exempt from cuts.

The Organization of the Petroleum Exporting Countries on November 30 agreed to cut its production from January by 1.2 million barrels a day to end a persistent oil glut. Analysts say continued production growth could cause OPEC members to rethink the current strategy.

Thus, with the compliance of OPEC deal to increase only gradually, relatively sharper increase in the U.S.'s daily oil production will have bearish influence on oil prices. That's the largest drop in three years.

Oil prices rose on Friday after reports that OPEC members delivered more than 90 percent of the output cuts they pledged in a landmark deal that took effect in January. The deal struck last year, which included cuts from some non-OPEC suppliers, was for only six months, with the option to extend for another half year if there's unanimous agreement. Other global producers have agreed to cut output by 558,000 bpd with Russian Federation agreeing to slash 300,000 bpd. Iraq in particular was singled out by the S&P Global Platts report, as its January output of 4.48 million bpd was well above its quota of 4.35 million bpd (although the report noted Iraq's output had declined 150,000 bpd from December).

However, the solution to the oil market's imbalance still rests heavily on United States shale producers.

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Coupled with the IEA's 100,000-barrel per day upward revision to demand increase expectations to 1.4 million barrels, the Paris-based watchdog's data should have a positive impact on the oil markets, both domestic and worldwide.

The potential for disruptions resulting in escalating tensions between the US and Iran is another factor though evidence of increasing production out of Africa, adding to quickly growing USA production, contributed to tempering gains.

OPEC and eleven non-OPEC countries agreed late previous year to cut oil production in order to shore up plunging oil prices.

Egypt will receive one million Iraqi oil barrels a day, at a much lower price than Saudi Arabia's, which had been initially promised to Al Sisi in the framework agreement envisaging 23 billion U.S. dollars of aid on a yearly-basis.

Oil prices maintained the positivity of the past couple of days by holding onto gains and edging up ever so slightly early this morning.

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