OPEC's oil production ticks down in February as Saudis shoulder most cuts

What keeps OPEC awake at night

OPEC production fell in February as Saudi Arabia continued to compensate for other cartel members who have not yet achieved promised output cuts.

The producer group also raised concerns about rising global oil inventories and resurgent U.S. supply in its monthly report, and raised its forecast for non-OPEC production for 2017.

The Organization of the Petroleum Exporting Countries produced a combined 31.96 million barrels a day last month, compared with 32.1 million barrels a day in January, according to secondary sources.

"High compliance with supply adjustments by OPEC and some non-OPEC producers supported gains" in crude oil futures in February, OPEC said.

Output by the members that committed to cutting production late last year was 29.7 million barrels a day, compared with 29.9 million last month. Libya and Nigeria are exempt as they attempt to restore supply sidelined by internal conflict.

Iran is permitted to increase its pumping to a certain extent. The February figures showed it was producing about 17,000 barrels a day above that level.

Among the cartel members still pumping beyond promised levels are Iraq, OPEC's second largest producer, and the United Arab Emirates, which pumped 63,000 and 51,000 barrels a day above their quotas, respectively.

OPEC agreed in November to curb output by 1.2 million barrels a day in the first half of 2017 to reduce a global oversupply of crude oil. Eleven other exporters including Russia committed to reducing their total supply by 556,000 in December.

While Reuters put the group's combined compliance to the output cut deal above 100 percent, Saudi Arabia continues to provide the lion's share of reductions.

Saudi energy minister: We have been bearing a significant part of the load of OPEC cut

Riyadh once again cut more deeply than required under the deal, according to both Saudi and secondary sources.

However, the Saudis reported significantly higher output than independent assessments showed. Riyadh said it produced 10.01 million barrels a day last month.

It pumped 9.8 million barrels a day in February, below its 10.06 million barrel per day quota under the accord, secondary sources said. That would be lower than its 9.87 million barrel a day output in January.

The discrepancy is likely the result of a rebound in internal demand, which secondary sources can miss because they're focused on exports, said John Kilduff, founding partner at energy hedge fund Again Capital.

"If the Saudis are saying it, we take them at their word," he said. "They're probably the only ones you can believe when it comes to self-reporting."

Angola, OPEC's largest African producer, was the only other member to produce below its quota, secondary sources reported. Gabon, Kuwait, Qatar and Ecuador were 1,000 to 4,000 barrels a day above set levels.

The united front OPEC members showed in the early days of the deal has begun to crack. Saudi Oil Minister Khalid Al-Falih warned last week at the CERAWeek by IHS Markit conference that the kingdom would not underwrite other producers' investments at its own expense.

Also during the conference, Iraqi Oil Minister Jabbar Ali Al-Luiebi said Baghdad could raise output to above 5 million barrels a day by the beginning of the second half.

OPEC ministers convened a last-minute conference at CERAWeek following those comments to reaffirm their commitment to the deal.

Supply and Demand Outlook

OPEC raised its forecast for 2017 oil demand by 70,000 barrels a day on the view that developed European nations and the Asia-Pacific region will consume more crude than previously thought. It now sees world demand averaging 96.31 million barrels a day this year.

The cartel also raised its 2017 non-OPEC supply outlook by 160,000 barrels a day, accounting for an "improving outlook for Canadian oil sands and US supply."

Croft: US will be the last market to rebalance

Higher oil prices, bolstered by OPEC's production curbs, have made more high-cost U.S. shale oil production profitable. Crude futures slid 9 percent last week after data showed another build in U.S. crude inventories.

"It seems that the oil supply recovery is gathering momentum in the world oil market, stimulated by gradually rising prices as well as improvements in drilling efficiency and well productivity in North America," OPEC said in its March report.

Oil held in storage in the Organization for Economic Co-operation and Development, a group of developed nations, rose in January to more than 3 billion barrels, above the five-year average, according to OPEC.

Correction: This story has been updated to reflect that Gabon, Kuwait, Qatar and Ecuador produced between 1,000 and 4,000 barrels a day above their quotas.