Oil jumps as IEA sees record OPEC cuts compliance, rising demand

Mark Shenk February 10, 2017

NEW YORK (Bloomberg) -- Oil rose as the International Energy Agency said OPEC had achieved record initial compliance of 90% with their production cuts accord, while demand grew faster than expected.

Futures advanced as much as 2.1% in New York. In the first month of the Organization of Petroleum Exporting Countries’ agreement, key member Saudi Arabia reduced production by even more than it had committed, while higher demand is aiding the group’s bid to re-balance world markets, the IEA said.

Oil has fluctuated above $50/bbl since a deal to trim output between OPEC and 11 other crude exporters took effect on Jan. 1. U.S. producers are taking advantage of higher prices by boosting output to the highest level since April, a dynamic the IEA said is capping prices in the mid-$50s.

"It’s real positive that OPEC is at 90 percent compliance," Mark Watkins, the Park City, Utah-based regional investment manager for the Private Client Group at U.S. Bank, which oversees $136 billion in assets, said by telephone. "There credibility is higher than its been in a long time. This proves that they are serious about supporting the price of oil."

West Texas Intermediate for March delivery rose $1, or 1.9%, to $54/bbl at 11:21 a.m. on the New York Mercantile Exchange. Total volume traded was about 9% above the 100-day average. Prices are little changed this week.

Record compliance

Brent for April settlement climbed $1.11, or 2%, to $56.74/bbl on the London-based ICE Futures Europe exchange, and are also little changed for the week. The global benchmark crude traded at a $2.31 premium to April WTI.

The IEA increased its estimates of 2016 world oil demand growth for a third month, and boosted its outlook for 2017, anticipating an increase of 1.4 MMbopd this year. World oil inventories will fall by 600,000 bpd during the first half of the year if OPEC sticks to its agreement, the IEA said.

OPEC is being joined by 11 non-members including Russia and Kazakhstan, who implemented about half of their pledged cut of 558,000 bpd last month, preliminary data from the agency shows.

Data from OPEC itself, derived from six external sources including the IEA, showed a compliance rate of 92%, according to a person familiar with the matter. The organization will publish the statistics in its monthly report on Feb. 13.

"The market is focused on reduced supply and increased demand," Gene McGillian, manager of market research for Tradition Energy in Stamford, Conn., said by telephone. "The IEA is saying that OPEC compliance is at an impressive 90%, while increasing their demand outlook. There was also data showing that while Chinese imports were down last month, they remain very strong, adding to the rebalancing picture."

China’s crude imports in January slipped from a record as refiners eased buying before the Lunar New Year break. China imported 8.05 MMbpd in January, according to Bloomberg calculations based on data Friday from the General Administration of Customs. While imports are up 27.5% from the same month last year, they’re down 6.4% from December’s record 8.6 MMbpd.

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