In its monthly report on the global oil market, the International Energy Agency said, however, that it believes the supply glut is easing, partly because demand is growing faster.
“There would be more confidence that re-balancing is here to stay if some producers party to the output agreements were not… showing signs of weakening their resolve,” the IEA said.
OPEC and a number of other producers including Russia agreed late last year to cut production to ease oversupply and support the price of crude. In May they extended those cuts into 2018.
However, the effort has been undermined by a number of countries failing to honour their pledges to reduce output.
“The compliance rate with OPEC’s output cut fell again in July to a new low of 75 percent from June’s revised figure of 77 percent,” said the IEA.
For the non-OPEC countries that joined the pact, the compliance rate edged up to 67 percent, the IEA said.
It found that the 22 countries bound by the pact are producing about 470,000 barrels per day in excess of their commitment, while global output was around 500,000 barrels higher in July than one year ago.
– ‘Convince the market’ –
“If rebalancing is to be maintained, the producers that are committed to seeing the task through to March 2018 need to convince the market that they are in it together,” said the IEA.
“It is not entirely clear that this is the case today.”
Saudi Arabia and Iraq, OPEC’s top two producers, vowed Thursday to strengthen their commitment to the production cuts.
While Saudi Arabia met its production limits in July, Iraq only made one-third of the cut it had pledged, according to the IEA report.
The IEA found that global oil supply rose by nearly half a billion barrels per day in July to 98.16 million barrels per day (mbd).
It raised its forecast for growth in demand this year, to 1.5 mbd, to an average daily demand 97.6 mbd.
“Producers should find encouragement from demand, which is growing year-on-year more strongly than first thought,” said the IEA, adding “from the producers’ viewpoint, strong growth reduces the stocks overhang.”
The production cut deal last year was a change of strategy by OPEC, which led by Saudi Arabia had previously been pumping as much it could in order to squeeze out higher cost competitors, in particular, shale oil producers in the United States.
But US shale producers have proved more resilient, cutting costs, with output now higher than before oil prices tumbled from above $100 per barrel in 2014.
While US oil firms have recently announced cuts to investments, the IEA said it was sticking to its forecasts for output to increase further thanks to gains in productivity.
Oil prices fell on Friday, with Brent crude down 39 cents to $51.51 in London morning trading. WTI fell 41 cents to $48.18.
Oil prices have swung around $50 per barrel since the OPEC-led deal came into place.