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Despite steep Opec production cuts to reduce the global oversupply and prop up prices, oil stockpiles are expected to remain at elevated levels at least through the first half of 2017, the International Energy Agency said on Friday.

The level of curbs in accordance with an agreement reached late last year between the world’s biggest producer countries was “one of the deepest in the history of Opec output cut initiatives,” said the global energy advisory body said in its monthly oil market report.

Opec crude production fell by 1m barrels a day to 32.1m b/d in January, leading to record initial compliance of 90 per cent, the IEA said. Opec does not apply penalties for non-compliance and members have had a poor track record of meeting targets in the past.

But Opec kingpin Saudi Arabia cut more than required, helping to offset higher output from Nigeria and Libya which were exempt from the deal. Russia, Kazakhstan and Oman have also made curbs in line with the deal.

While stocks in industrialised nations fell in the fourth quarter by 800,000 b/d – the largest drop in three years – they continued to build in China and other emerging economies. Volumes of oil stored at sea also increased. The IEA said that, should Opec continue January levels of compliance, stockpiles will still remain significantly above historical average levels by June.

“This stock draw is from a great height,” it said.

At the same time, higher oil prices since the December Opec meeting have triggered a ramp up in drilling activity in countries outside of the cartel. The IEA expects “significant increases in production” across countries such as the US, Brazil and Canada. Non-Opec production is forecast to grow by 400,000 b/d from last year to hit 58m b/d in 2017. US shale oil production alone is expected to increase by 175,000 b/d this year.

“The oil market is very much in a wait-and-see mode,” said the IEA. High stock levels and interest in Opec compliance and the recovery of US shale production has held the price of Brent crude oil in the mid-$50s a barrel since mid December, it added.

Even so, the IEA revised its demand numbers for 2017 up as industrial activity surpassed expectations. Although growth will decelerate from 1.6m b/d to 1.4m b/d, it is higher than initially expected, taking the total to 98m b/d.

The report was shorter than normal ahead of the publication of the IEA’s five-year outlook early next month.

Copyright The Financial Times Limited 2017. All rights reserved.
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