Oil Jumps as IEA Sees Record OPEC-Cuts Compliance, Rising Demand

  • Global demand growth estimates upgraded for 2016 and 2017
  • OPEC achieves record 90% compliance to production curbs: IEA

OPEC Delivers Record 90% Compliance on Output Cuts

Oil rose as the International Energy Agency said OPEC has achieved a record 90 percent initial compliance with a production cut accord, while demand grew faster than expected.

Futures advanced 1.6 percent 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 a barrel 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. "Their credibility is higher than it’s been in a long time. This proves that they are serious about supporting the price of oil."

West Texas Intermediate for March delivery rose 86 cents to settle at $53.86 a barrel on the New York Mercantile Exchange. Total volume traded was about 15 percent above the 100-day average. Prices rose 3 cents this week.

Record Compliance

Brent for April settlement climbed $1.07, or 1.9 percent, to $56.70 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude dropped 0.2 percent this week. The contract closed at a $2.37 premium to April WTI.

See also: At $60,000 an acre, Permian may be too ritzy as oil prices rise

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 million barrels a day this year. World oil inventories will fall by 600,000 barrels a day 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 barrels a day 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 percent, 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, Connecticut, said by telephone. "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 million barrels a day in January, according to Bloomberg calculations based on data Friday from the General Administration of Customs. While imports are up 27.5 percent from the same month last year, they’re down 6.4 percent from December’s record 8.6 million barrels a day.

Oil-market news:

  • Saudi Arabian Oil Co. will sell full volumes of contractual supply for March to Asian refiners, according to people with knowledge of the matter who asked not to be identified because the information is private.
  • U.S. oil drillers boosted the rig count by 8 to 591 this week, the most since October 2015, according to Baker Hughes Inc.
  • Occidental Petroleum Corp. may double its U.S. Permian Basin oil production in the next four years after record-low costs to find and pump crude helped make it the company’s main profit driver.
Before it's here, it's on the Bloomberg Terminal.