Opec compliance with supply cuts slips to a six-month low as producers 'open the taps'

Courtney Goldsmith
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Low oil prices have plagued the industry due to a supply glut (Source: Getty)

Compliance with the Organisation of the Petroleum Exporting Countries' (Opec) oil production cuts slipped last month as ramped up output from exempt countries diluted the cartel's efforts to curb supply, a closely watched industry report said.

Producers "opened the taps" as Opec crude output rose by 340,000 barrels per day (bpd) in June to 32.6m bpd, the International Energy Agency (IEA) said in its monthly report.

Global oil supply rose by 720,000 bpd to 97.46m bpd in June.

The IEA said compliance among Opec members on a deal to cut production by 1.2m bpd until March 2018 slipped to a six-month low of 78 per cent from 95 per cent in May, and investors are losing confidence in the cartel's ability to re-balance the market.

"Each month something seems to come along to raise doubts about the pace of the rebalancing process. This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by Opec with its own output agreement," the IEA said.

Read more: Opec forecasts lower demand in 2018 as the cartel's output rises again

Opec crude output rose to 32.6m bpd in June (Source: IEA)

Compliance from the ten non-Opec nations who also agreed to cut production improved to 82 per cent in June, however.

Libya and Nigeria, which are not subject to Opec's cuts, have produced a combined output increasing by more than 700,000 bpd over the past few months, the France-based energy agency said.

This has diluted Opec's production cuts by nearly two-thirds, which the IEA noted: "must be very frustrating especially as their pact has, hitherto, been well observed by historical standards".

The current market balance implies a global stock draw of 0.7m bpd in the second quarter of 2017, but for now, actual stock numbers do not support this picture.

However, the IEA said data for the quarter remains incomplete.

"Thus, we need to wait a little longer to confirm if the process of re-balancing has actually started in 2Q17 and if the waning confidence shown by investors is justified or not."

Read more: Oil prices jump as Goldman Sachs calls on Opec to 'shock and awe'

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