The oil market looks set to rebalance earlier than expected as OPEC members cut production, according to a report from UBS.
OPEC oil output has reduced significantly since the production-cut agreement made in November. Saudi Arabia has reportedly cut production by 160,000 barrels per day (bpd), while Kuwait and Qatar have both cut down 20,000 bpd.
Production cuts elsewhere look set to speed up the pace at which the oil market supply and demand will balance, leading UBS to revise its forecasts for rebalancing from the second quarter of 2017 to the first.
"Incorporating the IEA's (International Energy Agency) baseline demand revisions would, all else equal, bring forward our projected rebalancing from 2Q17 to 1Q17," said UBS analysts Jon Rigby, William Featherston and Joseph Head in the report out today.
Russia is also complying with the agreed production cuts, according to the country's energy minister Alexander Novak. He claims Russia is cutting production twice as fast as originally planned.
"We have seen the statement made by Saudi Arabia's minister claiming the country lowered the output bigger than the agreement reads," he told a news conference on Sunday, as reported by the Russian news agency TASS.
"Russia observes its obligations quicker, and the cutting is almost twice quicker than planned initially."
Once the oil market is balanced and the pace of inventory drawdowns increases, UBS predicts oil prices could rise by $5 to $10 per barrel. Rising oil prices should encourage more U.S. production, which may be needed to keep the market in check.
"If U.S. supply is less responsive that we envisage, however, then there is a risk the market overtightens, sending Brent above our $60 to $80 per barrel incentive range and laying the foundations for another price cycle."
Oil prices are lower today, weighed down by the prospects of increased U.S. production. Prices for are down around 68 cents at $54.82, while West Texas Intermediate is down 75 cents to $52.47.