Oil prices were up more than 1 percent early Friday morning after the International Energy Agency (IEA) said that OPEC’s supply-cut deal achieved a record initial compliance rate of 90 percent.
As of 7:23AM (EST), WTI Crude was up 1.19 percent at US$53.63, while Brent Crude was trading up 1.29 percent at US$56.35.
Oil prices are thus building on yesterday’s rise, driven by a bullish sentiment on the markets.
The IEA said today that it had estimated OPEC’s crude oil output at 32.1 million bpd in January, with record compliance, and some producers, especially Saudi Arabia, cutting more than pledged.
When OPEC decided last November to coordinate an output cut to 32.5 million bpd between January and June, the majority of analysts and experts were skeptical about the cartel achieving a high compliance rate, given its track record of breaching promises and tendency to cheat. OPEC’s average historical compliance rate is around 60 percent.
The most bullish of analysts had expected compliance at around 80 percent. Early into the cuts in January, OPEC sources were telling media and tipping the oil markets by saying that even a 50-percent compliance would be “acceptable”, with up to 60 percent deemed as “good enough”, and 80 percent – “good compliance”. Related: Is $55 Oil Really Enough For Qatar?
But the latest estimates, 90 percent by the IEA, and 91 percent by S&P Global Platts, suggest that this time around, OPEC may have delivered on its promise, at least for January. Both estimates concur that while some OPEC producers are still above their targeted production level – Iraq, in particular – others, like the cartel’s biggest producer and de facto leader Saudi Arabia, are cutting deeper than required.
OPEC’s own monitoring committee, consisting of both OPEC and non-OPEC members of those that have joined the cuts, is expected to report January production figures after February 17.
The estimates by the IEA and Platts exceed all expectations and defy skeptics. But it’s only early February; there are no mechanisms to actually enforce cuts; and OPEC and non-OPEC producers may find it tempting to pump a bit more now that their deal has pushed oil prices up roughly US$10 per barrel since the end of November.
By Tsvetana Paraskova for Oilprice.com
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