Renewed drilling by US oil producers is keeping a ceiling on a global crude price recovery, cutting into the impact of deep reductions by other major producers, OPEC said Monday. In its latest oil market report, the Organization of the Petroleum Exporting Countries said its members last month reduced output by 890,000 barrels per day according to secondary sources. The International Energy Agency (IEA) said last week that the initial rate of compliance with a landmark deal to reduce the global oil glut was 90 percent. The deal, agreed last year and in effect since January, called for the OPEC and some non-OPEC countries to reduce output by about 1.8 million barrels per day (mb/d). The oil price gained 73 cents in January from December to $52.40, according to the OPEC's reference basket, but would have risen more if the oil price recovery had not attracted high-cost American producers back to the market, the cartel said. "Production adjustments by OPEC and some non-OPEC producers supported the market, although gains were capped by increased drilling activity in the US,"it said. Among OPEC members, crude output decreased the most in Saudi Arabia, Iraq and the United Arab Emirates, while Nigeria, Libya and Iran increased production. The world's total oil supply fell by 1.29 mb/d in January, OPEC said citing preliminary data. OPEC's share in total production stood at 33.5 percent. Meanwhile, OPEC revised upwards world oil demand growth for 2016, saying it was now estimated at 1.32 mb/d and expected to continue strong this year, at 1.19 mb/d. This means the world's oil markets will continue to rebalance, OPEC predicted. "In 2017, oil demand growth is assumed to remain healthy with potential growth estimated at 1.2 mb/d, well above the ten-year average of 1.0 mb/d,"the organization said. Main factors supporting the scenario are strong global economic growth, solid demand from the road transport sector, and expectations for high vehicle sales in the US, Europe, China and India. Dampening demand will be progress made in fuel efficiency, potential reduction in subsidies for oil purchases and switches to other fuels, OPEC said. Investors greeted OPEC's report as a confirmation of the IEA's estimate of high output cut compliance, said Craig Erlam, an analyst at OANDA, adding however that the oil market may need more reductions before supply and demand can even out. "While this level of compliance is unusually strong, many still believe the agreement to cut 1.8 million barrels per day until June will still not be enough to bring the market back into balance,"Erlam said. US benchmark West Texas Intermediate was down 74 cents on the day $53.12 a barrel on Monday while Brent North Sea slipped 96 cents to $55.74.
