International Energy Agency: The first cut is the deepest

Baku, February 10, Nihad Budaqov, AZERTAC

Observers of the oil market this month are focussing on the level of compliance with the production cuts agreed by members of OPEC and eleven non-OPEC countries, closely followed by interest in the expected recovery in US light, tight, oil production, International Energy Agency reports.

“The IEA estimates that OPEC production in January was 32.1 mb/d and that the cuts achieved a record initial compliance rate of 90%, with some producers, notably Saudi Arabia, appearing to cut by more than required. While seaborne oil export data, from which secondary source estimates of OPEC production are mainly derived, are not complete for January and is subject to revision, OPEC nevertheless appears to have made a solid start to what is a six-month process. This first cut is certainly one of the deepest in the history of OPEC output cut initiatives.

As far as compliance by the non-OPEC producers is concerned, Russia stated at the time of the agreement that its production cut of 300 kb/d, more than half the 558 kb/d committed by the eleven countries, would be phased in gradually and preliminary data shows output down by 100 kb/d in January. While no official data has been released, Oman says it has cut by 45 kb/d in line with its commitment and Kazakhstan is reportedly exceeding its target.”

“For non-OPEC countries outside of the output deal, we expect significant increases in production in, for example, Brazil, Canada and the US whose combined output is expected to grow by 750 kb/d in 2017. The net change for non-OPEC production in 2017, taking into account cuts by eleven countries, is close to a 400 kb/d increase. For US LTO, recent increases in drilling activity suggest that production will recover and the IEA's forecast is growth of 175 kb/d for the year as a whole with production in December expected to be 520 kb/d up on a year earlier,” the IEA said.

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