OPEC Cuts Supply, But More Work Needed to Fulfill Deal

OPEC cut output by 840,000 barrels a day last month, but has more work to do to fully comply with last year’s historic production deal.

The Organization of Petroleum Exporting Countries pumped 32.3 million barrels a day in January, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data, Bloomberg reported.

The 10 members of the group that pledged to make cuts in Vienna two months ago has implemented 83% of those reductions on average, but their efforts were offset by increases from Iran, Nigeria and Libya who were exempted from the cuts.

Accounting for the members who raised output and the suspension of Indonesia, OPEC’s total output remains 550,000 barrels a day above the target set out in the Nov. 30 deal. That means the group as a whole is only about 60% of the way toward the production level it deems necessary to eliminate a global oversupply and boost prices.

Oil has fluctuated above $50 a barrel since OPEC and 11 non-members agreed in December to trim supply by as much as 1.8 million barrels a day. While Middle Eastern producers from Saudi Arabia to Iraq have implemented cuts and Russia says it is ahead of schedule with its own reduction, wary investors are also considering signs that US drillers are taking advantage of higher prices to stage a comeback.

Saudi Arabia, OPEC’s largest producer, led the January cuts with a reduction of half a million barrels a day, going below 10 million for the first time in almost two years. The UAE and Kuwait followed by cutting a combined 310,000 barrels a day.

Production in Iraq, which tried and failed to secure an exemption from the cuts, declined by 120,000 barrels a day to 4.51 million. At the same time, OPEC members not required to make cuts added 270,000 barrels a day in January.

OPEC’s agreement lasts for six months, with the goal of shrinking bloated oil inventories that are keeping a lid on prices. While the organization has the option to prolong the deal, some members, including de-facto leader Saudi Arabia, have said an extension may not be necessary.

“The exempted countries partially spoiled the effectiveness of OPEC cut,” Giovanni Staunovo, an analyst at UBS Group AG, said by e-mail. In the last organized cuts in 2008, OPEC’s compliance rate stood at 70%, according to Hasan Qabazard, OPEC’s former head of research.