Feb. 16 (UPI) -- Production cuts from the Organization of Petroleum Exporting Countries aren't enough to cut global crude oil supplies, a market analyst said Thursday.
OPEC members, and coordinating non-member states, last year agreed to hold production levels steady in an effort to erase a glut of oil on the market. An oversupplied market last year pushed oil to historic lows and OPEC's agreement is aimed at restoring balance.
Market watchers estimate a compliance rate of about 90 percent so far. Saudi Arabia is the largest contributor to overall cuts and secondary sources reported total OPEC production at 32.1 million barrels per day at the end of January, a decline of 2.7 percent from December and below the target range.
Libya and Nigeria are exempt from the agreement as they depend on revenue from their energy sectors to help ensure national stability. Iran, meanwhile, is the only member state allowed to increase its production as it looks to regain a market share lost to nuclear-related sanctions.
Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said in an emailed report that OPEC's goals through the duration of the six-month agreement depend in large part on how much production comes from members operating outside the deal.
"The OPEC cuts are not enough to reduce global crude supplies in the first half of the year compared to a year ago, they are just enough to maintain supply about unchanged versus last year," he said in the report.
By the estimates of his group, total global crude oil supplies would be slightly higher than last year during the first half of the year if OPEC's production levels through January hold through the duration of the agreement.
The terms of the agreement signed in November said the deal could be extended for another six months "to take into account prevailing market conditions and prospects."
Crude oil prices have moved in peaks and troughs in day-to-day trading, but kept within a narrow band around $55 per barrel for most of the year so far. U.S. shale oil, already more resilient than expected, should start to recover in early 2017 and potentially add to emerging supply-side concerns.
"We should however keep in mind that the global supply and demand balances are not for crude demand versus crude supply but for oil product demand versus crude oil supply," Jakob added.