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IEA hails 'solid start' to OPEC cut pact, raises oil demand outlook

London — * OPEC 90% compliant with output pact
* OECD stocks below 3 billion barrels
* 2016 demand growth raised again

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The International Energy Agency on Friday revised upward its estimate of global oil demand growth for this year to 1.4 million b/d, from 1.3 million b/d, and said OPEC had made a "solid start" to its six-month production cut pact, confirming signs of a tightening market.

In its latest monthly oil market report, the IEA also said oil stocks in the OECD developed countries had fallen below the symbolic 3 billion barrel level at the end of 2016 for the first time in a year, although it cautioned that volumes were still rising in China and emerging markets, and at sea.

It estimated that OPEC crude output had fallen by 1 million b/d in January to 32.06 million b/d and that global oil output generally had fallen by 1.5 million b/d. World oil production was 730,000 b/d lower than a year ago, at 96.4 million b/d, the agency said.



OPEC's implementation of the production pact it agreed last November amounted to 90% in January, the month it went into force, with some members, notably Saudi Arabia and Iran, cutting by more than the agreed amount.

The UAE and Venezuela meanwhile over-produced by 90,000 b/d and 80,000 b/d respectively, the IEA said.

It also said Russia appeared to have cut production by 100,000 b/d in the first month of its phased commitment to cut output by 300,000 b/d as part of the six-month deal between OPEC and some non-OPEC producing countries.

But it also repeated its forecast that overall non-OPEC production is likely to increase by nearly 400,000 b/d this year, compared with an 800,000 b/d decrease last year, thanks to a revival in US shale output and longer term investment in Brazil and Canada.

Output from those three countries is likely to rise by a combined 750,000 b/d this year, it said.

While assessments of OPEC's production pact are preliminary, "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," the IEA said.

Market reaction was muted, with Brent crude futures for April delivery and WTI crude futures for March both up about half a dollar from Thursday's settle, suggesting residual skepticism about the OPEC accord.

Commerzbank highlighted a recent surge in US crude imports as a reason for doubt, while consultancy Petromatrix said "high compliance from OPEC was expected for the starting months," but more strenuous efforts by Saudi Arabia to protect its market share could be expected.

The IEA also revised upward its estimate of last year's oil demand growth for the third month in a row, to 1.6 million b/d, driven by industrial demand and stronger-than-expected demand in Europe, in part weather-related.

The report reiterated that supply and demand had already been in balance for much of the middle of last year, and forecast an under-supply for the first half of this year.

It also noted, however, that the decline in oil stocks implied by OPEC's production curb pact is "from a great height." At the end of 2016, OECD oil stocks were still 286 million barrels above the five-year average and they are likely to remain significantly above average at the end of June, the IEA said.

OECD commercial oil stocks were 2.986 billion barrels at the end of December.

"The continued existence of high stocks, plus caution from the markets in assessing the level of output cuts and how other producers might grow production, explains why Brent crude oil prices have remained at the mid-$50s/b level since mid-December after receiving a post-output deal boost of close to $10/b," the IEA said.

"The oil market is very much in a wait-and-see mode," it added.

--Nick Coleman, nick.coleman@spglobal.com
--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com

Read our related analysis: Iran takes market share from OPEC rivals