One year On, OPEC Closer to Target Production Cuts

Oil stocks in developed OECD economies, which were 340 million barrels above the five-year average in January 2017, were just 74 million barrels above that level last month, Ayed Al Qahtani, OPEC's head of research, told a conference.

The Organization of the Petroleum Exporting Countries is reducing output by about 1.2 million barrels per day as part of its deal with Russia and other non-OPEC producers. The pact began in January 2017 and will run until the end of 2018.

A strong level of adherence by producers to their pledged cuts helped to erode the surplus. OPEC said their compliance in January was 133 percent, meaning they were cutting more than pledged and a figure which Al Qahtani said was a record high.

"This conformity level has been very successful in withdrawing the overhang," Al Qahtani told the Energy Institute's IP Week, an annual conference of the oil trading industry in London.

The stated goal of the supply-cutting deal was to reduce oil inventories to the five-year average. The surplus of 74 million barrels is the smallest yet reported since the cuts began.

But OPEC officials are increasingly talking of looking at different metrics.

The level of the latest five-year average may be higher than it was a year ago, even though the size of the surplus against that average is coming down, an OPEC source said. That means the figures give a more mixed picture for OPEC.

Saudi Arabia's Energy Minister Khalid al-Falih said last week that OPEC and its allies would need to consider how to adjust targets and should take into account non-OECD inventories, floating storage and oil in transit.