Higher than anticipated demand for OPEC crude combined with the historic deal in December with non-OPEC nations to cut production is forecast to rebalance the oil market in the second half of 2017, according to OPEC's latest monthly report.
OPEC nations met in Vienna, Austria at the end of November and agreed to implement a cut in oil production of 1.2 million barrels per day (b/d) from January. Further to this agreement, the pact was boosted by non-OPEC members announcing they would also cut an additional 558,000 b/d when the eleven oil producing countries met with OPEC in early December.
The deal, combined with higher-than-anticipated demand for OPEC crude in 2017, is forecast by the 14 member oil-producing cartel to result in an acceleration of the reduction of global inventories and a rebalancing of the oil market in the second half of next year.
The demand for OPEC crude in 2017 had been projected to be 32.5 million b/d at the most recent OPEC ministerial conference. However, this has been amended to 32.6 million b/d.
Oil prices surged higher after the announcement of the landmark global pact to tackle global oversupply yet questions over the implementation of the deal remain. Skepticism among investors is rife given oil prices have more than halved since 2014 as a result of global oversupply.
Brent crude traded at around $54.89 a barrel in late morning trade Wednesday, down 0.87 percent, while U.S. crude was around $52.09 a barrel, down 0.89 percent. The next monthly report from OPEC is due to be released January 18.
"Communication from OPEC is confusing," Nitesh Shah, commodities strategist with ETF Securities, told CNBC in an email on Wednesday.
"We are somewhat skeptical that cartel and the non-cartel members will stick to their production targets and the market may have over-priced the extent to which inventories will fall next year," he added.