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Despite revising sharply upward its projection for 2017 non-OPEC oil supply, largely due to US shale, OPEC on Wednesday sounded an optimistic note, saying that the onset of the summer driving season, along with strong discipline within the producer group with its production cut agreement, will provide a bullish environment for prices in the coming months.

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"The return of refineries from seasonal maintenance and healthy demand, together with the high conformity observed in OPEC and non-OPEC production adjustments, should enhance market stability and reduce the volatility seen in recent weeks," OPEC said in its monthly oil market report.

In particular, US oil demand trends "continue to provide grounds for optimism," OPEC said, while oil demand growth in China was "very solid" in February.

OECD commercial oil stocks fell 28.3 million b/d in February, reversing January's build, OPEC said, and stand at 2.987 billion barrels, about 268 million barrels above the five-year average.



The call on OPEC crude for 2017 will average 32.2 million b/d, a downward revision of 100,000 b/d from February's report but above the group's March output level of 31.93 million b/d, according to secondary sources.

OPEC kept its overall 2017 world oil demand forecast largely unchanged at 96.32 million b/d.

But even with its projection that non-OPEC supply will grow to average 57.89 million b/d in 2017, a 176,000 b/d upward revision from its February report, OPEC said it still sees the oil market in deficit in the third quarter.

Demand for OPEC crude is estimated at 31.58 million b/d in Q1, rising to 31.65 million b/d in Q2, 33.13 million b/d in Q3, and 32.48 million b/d in Q4, the report said.

OPEC's 13 ministers will meet in Vienna on May 25 to review the production cut agreement, which expires in June, amid reports of growing consensus within the group to extend the deal into the second half of the year to draw down inventories further and support prices.

"Higher demand for oil products will encourage refiners to maximize throughputs following the end of the spring maintenance season, amid new capacity coming on line in North America, Middle East and Asia," OPEC's report said. "This in turn will increase demand for crude oil over the coming months and already has for long haul crude oil deliveries."

PRODUCTION CUT COMPLIANCE

OPEC production in March fell 152,700 b/d from February, according to OPEC's independent secondary sources, which include the S&P Global Platts OPEC survey.

Including Indonesia, which suspended its membership in November and is not counted in OPEC's statistics, the producer group remains about 160,000 b/d above its stated 32.5 million b/d ceiling under the deal.

The deal calls for the group to cut 1.2 million b/d from October levels, while 11 non-OPEC producers, led by Russia, agreed to cut 558,000 b/d.

Saudi Arabia produced 9.99 million b/d in March, a rise of 41,600 b/d from February, according to secondary sources, while the kingdom self-reported output of 9.90 million b/d in the month, down 111,000 b/d from February. Its quota under the OPEC/non-OPEC deal is 10.058 million b/d.

Iraq, which has disputed secondary source estimates of its output, produced 4.40 million b/d in March, down slightly from February's 4.41 million b/d, according to secondary sources. Iraq did not self-report a March figure but said in February that it produced 4.57 million b/d.

The country remains the most non-compliant OPEC member in the deal, as its quota is 4.351 million b/d.

Iran's production in March was 3.79 million b/d, according to secondary sources, down 28,700 b/d from February and just under its quota of 3.797 million b/d. It did not self-report a March figure.

The OPEC report also estimated Russia's output for March at 11.15 million b/d, 60,000 b/d lower than January and February but significantly above its quota of 10.90 million b/d. Russia has said it will lower output gradually throughout the six months of the deal.

--Herman Wang, herman.wang@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com