Feb. 10 (UPI) -- Even though OPEC members are largely complying with a production deal, the net market condition still favors the supply side slightly, the IEA said Friday.
According to the International Energy Agency, members of the Organization of Petroleum Exporting Countries are reporting an initial compliance rate of 90 percent to a managed production decline agreement. OPEC agreed to limit production starting in January in an effort to balance a market that was favoring the supply side.
Initial reports rely on reports directly from the countries themselves and secondary source estimates aren't yet completed for January.
"OPEC nevertheless appears to have made a solid start to what is a six-month process," the IEA reported. "This first cut is certainly one of the deepest in the history of OPEC output cut initiatives."
Iran is the only OPEC member with room to grow, while Libya and Nigeria are exempt from the agreement. Saudi Arabia, meanwhile, has cut its production beyond a benchmark and is pushing the entire group toward its goals.
Outside of OPEC, the IEA said production from Brazil, Canada and the United States is expected to add a collective 750,000 barrels of oil per day to the market in 2017. On the demand side, IEA estimates economic growth in countries like China and India means the appetite for oil is growing. That suggests the overall market is tightening.
Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said in an emailed report that many of the short-term changes in market dynamics "are not coming per se from an improving view of demand growth in 2017 but from higher than expected demand in 2016."
The IEA wouldn't offer a forecast for total OPEC crude oil production for the first six months of the year. If compliance holds, it would imply a global draw on crude oil inventories, but the IEA cautioned that inventories are at record highs.
"At the end of the year they were still 286 million barrels above the five-year average level and by the end of first half of 2017, they will remain significantly above average levels," the report read.
The IEA said caution is prevailing on the broader energy market as traders watch for production growth from some countries not party to the OPEC agreement, like the United States. This, the agency said, explains why crude oil has traded in a narrow band in the mid-$50 range since mid-December.
"The oil market is very much in a wait-and-see mode," it said.