The cartel pumped more oil in July, boosting global supplies for the third month and casting doubt on OPEC's pledge to reduce production. But the IEA industry group hopes growing demand will take up the slack.
In its monthly report on the global oil market, the International Energy Agency (IEA) said that in July the 22 countries, who had pledged to cut their output, were producing about 470,000 barrels per day (bpd) in excess of their commitment, increasing global oil supply to 500,000 bpd more than a year ago.
"The compliance rate with OPEC's output cut fell again in July to a new low of 75 percent from June's revised figure of 77 percent," IEA said in its report released Friday. For the non-OPEC countries that joined the pact, the compliance rate edged up to 67 percent, said the Paris-based organization, which advises industrial countries on energy policy.
OPEC and a number of other producers including Russia agreed late last year to cut production to ease oversupply and support the price of crude. In May they extended those cuts into 2018.
IEA said compliance was weak by Algeria, Iraq and the United Arab Emirates, while Libya, which is currently exempt from the output cuts, steeply increased output. The oil industry group noted that markets were "not entirely clear" if all parties to the deal would be willing to honor their pledge.
"If re-balancing is to be maintained, the producers that are committed to seeing the task through to March 2018 need to convince the market that they are in it together," said the IEA.
Hopes pinned on demand growth
As global oil supply overshoot demand by 520,000 bpd in July, oil prices continued to languish in the doldrums. On Friday, North Sea Brent crude was down 39 cents to $51.51 (43.78 euros) in London morning trading. US benchmark WTI fell 41 cents to $48.18.
Oil prices have swung around $50 per barrel since the OPEC-led deal came into place - a far cry from historic peaks of well above $100 a few years ago.
Nevertheless, IEA said producers should find encouragement from demand, "which is growing year-on-year more strongly than first thought," thus reducing the stocks overhang. IEA registered a decline in stocks in industrialized nations in both June and July, although they remained 219 million barrels above a 5-year average.
As a result of these developments, the organization raised its forecast for growth in demand this year to an average daily demand of 97.6 million barrels – about 1.5 million bpd more than previously estimated.
However, the main challenge to higher oil prices continued to be rising non-OPEC output, IEA said, which was expected to expand by 0.7 million bpd in 2017 and by 1.4 million bpd in 2018.
US shale producers, which are not participating in the output caps, were proving especially resilient to low prices after cutting costs. Their output is now higher than before oil prices tumbled from above $100 per barrel in 2014.
uhe/kd (Reuters, AFP)