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Published: Fri, March 17, 2017
Business | By Megan Pierce

OPEC flags headwinds for oil supply cut even as compliance rises

OPEC flags headwinds for oil supply cut even as compliance rises

Although OPEC states have been complying with supply curbs, led by Saudi Arabia, it has not been enough to overshadow a rise in US inventories to a new high.

An OPEC oil price reference basket rose by about two percent to an average of $53.37 in February, the organisation said. The Opec and IEA monthly reports due this week will give better understanding about the level of compliance.

"There was some misunderstanding on the reporting of our figures ... we are strongly committed to the December 10 agreement and we believe the other producers will keep to their commitments as well", a senior Saudi source told CNNMoney. Oil will have to drop to the $30s or lower to dent the bottom line of many drillers now working US shale fields, said Katherine Richard, the CEO of Warwick Energy Investment Group, which own stakes in more than 5,000 oil and natural gas wells.

Speculators had built record long positions on the hopes that the OPEC production cut will balance the market.

Despite dipping below $US50 a barrel last week, crude oil is still well above a 12-year low reached in January 2016 of around $US27 a barrel.

But the rally has been stuttering in recent weeks as a cocktail of threats to the recovery has emerged.

This comes as US drillers, particularly in the southern Permian Basin, have increased production, pushing the country's crude stockpiles to record highs and upsetting OPEC's plans to reduce global inventories.

At the time of writing, Brent was trading 1.5 percent higher at $51.73 a barrel and WTI was up by 1.8 percent at $48.59 a barrel. Both were at their lowest prices since November.

OPEC's attempt to boost global oil prices follows the organization's 2014 attempt to depress the global price of oils to counter new competition, largely from USA -based hydraulic fracturing, or fracking.

The production increase inched Nigeria closer to Angola which still remains Africa's largest oil producer, despite recording a drop in output.

The Organisation of Petroleum Exporting Countries (OPEC) confirmed the outlook for a deepening glut in its monthly report which shows Saudi Arabia ramped up output in February by 263,000 barrels per day to 10 million barrels per day. Analysts are expecting an increase of 3.5 million barrels.

Fresh data from the International Energy Agency showed global inventories rose in January for the first time in six months despite aggressive efforts by OPEC and non-OPEC members to reduce output. The growth is being driven by Canadian oil sands output and higher oil production in the United States. The contracts ended 89 cents and $1.14 higher respectively Wednesday. A Bloomberg survey had forecast a 10th weekly expansion.

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