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Business

April 13, 2017

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OPEC sees rivals’ oil output rising as it over-delivers on cuts

OPEC sees rivals’ oil output rising as it over-delivers on cuts

LONDON: OPEC cut oil output in March by more than pledged under a supply reduction deal and said oil inventories had fallen in February, suggesting that its effort to clear a supply glut that has weighed on world oil prices is succeeding.

But the Organization of the Petroleum Exporting Countries also raised its forecast for supplies from non-member countries in 2017 as higher oil prices encourage U.S. shale drillers to pump more, reducing demand for OPEC´s oil this year.

OPEC is curbing its output by about 1.2 million barrels per day (bpd) from Jan. 1 for six months, the first reduction in eight years, to get rid of a supply glut. Russia and 10 other non-OPEC producers agreed to cut half as much.

Oil prices pared gains on Wednesday after the report was released to trade at around $56 a barrel. Prices are still up from about $42 a barrel a year ago, and OPEC was upbeat on the outlook for the market.

"Despite some downside risks, general expectations for demand growth for oil products in the coming months remain bullish," said the report, which made a minor upward revision to its global demand forecast this year.

"The return of refineries from seasonal maintenance and healthy demand, together with the high conformity observed in OPEC and non-OPEC production adjustments, should enhance market stability and reduce the volatility seen in recent weeks."

In the report, OPEC pointed to an increase in its members´ compliance with the deal and said oil stocks in industrialised nations fell in February - although they are still 268 million barrels above the five-year average.

Supply from the 11 OPEC members with production targets under the accord - all except Libya and Nigeria - fell to 29.761 million bpd last month, according to figures from secondary sources that OPEC uses to monitor output.

That means OPEC has complied 104 percent with the plan, according to a Reuters calculation. OPEC did not publish a compliance number, but OPEC figures seen by Reuters on Tuesday also put adherence at 104 percent.

But OPEC revised up its estimate of oil supply growth from producers outside the group this year to 580,000 bpd, as higher oil prices following the supply cut help spur a revival in U.S. shale drilling.

"With the pick-up in drilling activity, as well as increasing cashflows in the tight oil industry, U.S. tight crude output is expected to rise quickly and increase 335,000 bpd for the overall of 2017," OPEC said, using another term for shale.

 

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