OPEC members have reportedly achieved a high level of compliance with the production cuts announced in November but their efforts to ramp up output ahead of the accord have left the market with a nasty hangover from 2016.
Compliance has been estimated at between 80% and 100% by the major reporting agencies, as deeper cuts by Saudi Arabia and some of its allies make up for poorer compliance by other members.
OPEC delivered 82% of its promised cut of 1.17 million barrels per day (MMbbl/d) in January according to Reuters, but as much as 98% according to Argus.
The problem is that many OPEC and non-OPEC countries ramped up production during the second half of 2016, especially during the final three months of the year before the agreement came into force.
Prior production increases have raised stocks and pushed back the time horizon for market rebalancing.
Some of the extra oil produced between October and December is now arriving in the U.S., given voyaging times from the Middle East Gulf to the eastern U.S. ranging from 30 to 60 days.
U.S. crude imports have been trending higher since November, according to an analysis of data from the U.S. Energy Information Administration.
Four-week average imports have climbed from 7.7 MMbbl/d at the end of October to 8.4 MMbbl/d at the end of January.
Imports accelerated to almost 9.4 MMbbl/d in the week ending on Feb. 3, the fastest rate since September 2012.
Imports have helped keep reported U.S. crude stockpiles high, which has arrested the upward trend in oil prices and calendar spreads.
U.S. crude oil stocks rose by almost 29 MMbbl during the first 34 days of 2017 compared with a 10-year average increase of less than 13 MMbbl.
If OPEC can maintain a high level of compliance, U.S. crude imports should start to decline within the next three to four weeks as the last of the extra tankers arrive and unload and the cutbacks start to bite.
But OPEC’s overproduction at the end of 2016 has delayed the eventual draw down in crude stocks and made the task of rebalancing harder.
OPEC will almost certainly need to extend its current six-month production accord if the organization wants to push the crude market into a deficit in the second half of 2017 and eliminate excess inventories.