OPEC’s compliance with production cuts fell in June to its lowest levels in six months as several members pumped much more oil than allowed by their supply deal, thus delaying market rebalancing, the International Energy Agency said on Thursday.
Global oil supply rose in June as compliance with an OPEC-led deal to freeze production showed signs that it was stalling.
OPEC’s compliance with cuts dropped to 78% last month from 95% in May as higher-than-allowed output from Algeria, Ecuador, Gabon, Iraq, the UAE and Venezuela balanced out strong compliance from Saudi Arabia, Kuwait, Qatar and Angola.
“Each month something seems to come along to raise doubts about the pace of the rebalancing process. This month, there are two problems: a strong recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement,” the Paris-based IEA said.
The supply of oil increased by 720,000 barrels a day in June across the world and by 340,000 barrels a day in OPEC countries. This was caused by higher production even in those countries subject to an OPEC-led deal to cut production. Saudi Arabia has increased its flows, the IEA said, as well as Libya and Nigeria who are not part of the production freeze.
“Higher output from members bound by the production pact knocked compliance to 78 percent in June, the lowest rate during the first six months of the agreement,” the IEA said in the report.
The agency also said that “compliance with agreed non-OPEC output curbs improved to 82 percent in June, overtaking compliance from OPEC for the first time since the cut took effect in January.”
The Organization of the Petroleum Exporting Countries and several non-OPEC producers, including Russia, have agreed to cut production by around 1.8 million barrels per day until March 2018 to ease a global crude glut spurred by booming U.S. output. But there are doubts mounting over the sustainability of the deal. Kazakhstan, for example, has said it wants a gradual exit from the output cap deal.
OPEC members Libya and Nigeria were exempted from the cuts due to years of unrest that have sapped their output. The two countries have managed to increase their combined production by more than 700,000 bpd in recent months, the IEA said.
“For fellow OPEC members, who agreed to reduce production by 1.2 million bpd, to see their cut effectively diluted by nearly two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards,” the IEA said.
The cuts have stabilized oil at around $45-50 per barrel, but prices have come under renewed pressure in recent weeks due to growing U.S. output and little evidence of global stocks falling from record highs above 3 billion barrels.
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