Oil reversed earlier losses on Wednesday as investors took heart from strict OPEC compliance with its pledge to cut output, although evidence of increasing US production capped gains.
The Organization of the Petroleum Exporting Countries reduced its oil output for a second month in February, a survey found, showing the exporter group has boosted already strong compliance to around 94%.
Heftier cuts by Saudi Arabia and Angola helped offset weaker compliance by other members that agreed to limit their output.
Oil prices are 23% higher than they were at the end of November, when OPEC announced its deal, but this strength has encouraged more US production to come back online.
“There seems … to be a consensus within OPEC that the optimal crude oil price is as near as possible to the upper line of our shale band price range ($40-60 a barrel) but not significantly above,” Olivier Jakob, a strategist at consultant Petromatrix, said.
“OPEC will be happy with price stability in the upper half of our shale band (i.e. trying to keep prices in the $50-60 upper half) and above $60 a barrel, we will see more OPEC cheating as members do not want to see US shale oil come back too strongly.”
US crude stockpiles have risen for seven straight weeks. Forecasts for another build last week, this time of 3.1 million barrels, have fueled worries that demand growth may not be sufficient to soak up the global oil glut.
Speaking about the issue, Nigeria’s oil minister Emmanuel Ibe Kachikwu had remarked that OPEC members must lower production costs to compete better with shale producers.
Kachikwu, in an interview with CNBC Africa, also said he was confident that an output reduction agreement agreed in November would see oil prices hold.
Nigeria, which relies on crude sales for around two-thirds of government revenue, saw its economy shrink 1.5% in 2016 – the first full-year contraction in 25 years – largely due to lower oil receipts.
Eleven of OPEC’s 13 members along with 11 non-OPEC countries agreed to make cuts for the first half of 2017, although Nigeria and fellow OPEC member Libya were exempt due to production setbacks suffered last year.
“OPEC members must lower production costs to compete better with shale producers,” said Kachikwu, quoted in a tweet on CNBC Africa’s Twitter feed.