Stronger-than-expected oil demand growth may be tilting the market to rebalancing, but confidence in any sustained rebalancing is suppressed on the back of OPEC and non-OPEC producers' signals of weakening resolve, the International Energy Agency (IEA) said in its August report on Friday.
Together, the 22 signatories to the oil output cut deal are producing about 470,000 bpd above the combined level they have committed to keep, according to the IEA, so promises of increased demand and reaffirmations of signatories to the production cuts are falling on mostly deaf ears.
"There would be more confidence that re-balancing is here to stay if some producers party to the output agreements were not, just as they are gaining the upper hand, showing signs of weakening their resolve," the international agency noted.
At the beginning of this week, OPEC held a meeting with some of the producers and cited its members Iraq and the UAE, as well as non-OPEC Kazakhstan and Malaysia, as laggards in compliance, but added that they "all expressed their full support for the existing monitoring mechanism and their willingness to fully cooperate."
On Thursday, the cartel said that its production increased in July, reporting a daily rate of 32.869 million barrels, up by 172,600 bpd compared to June. Libya, Nigeria, and Saudi Arabia were the main drivers behind the OPEC production increase.
While Libya and Nigeria are exempt from the deal, the other OPEC members are not doing "whatever it takes" to clear the glut.
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According to the IEA, OPEC's compliance rate dropped in July again, to a new low this year of 75 percent. Year-to-date compliance within OPEC is 87 percent. Compliance within the non-OPEC countries part of the deal is worse-at 67 percent last month, the IEA has calculated.
"If re-balancing is to be maintained, the producers that are committed to seeing the task through to March 2018 need to convince the market that they are in it together. It is not entirely clear that this is the case today," the agency said.
By Tsvetana Paraskova for Oilrprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More