OPEC Oil Cuts "Encouraging" But Prices Won't Reach the Low to Mid $60s: IEA

Neil Atkinson, head of the oil industry and markets division at the IEA

The International Energy Agency on Friday capped a week of middling news about the performance of the Organization of the Petroleum Exporting Countries' (OPEC) oil production cut agreement by stating that it's unlikely prices will reach the low to mid $60s as a result of the reductions.

Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC, "I think $63, $65 (for Brent), I think you might be a little bit ambitious there because the OPEC producers have got this basic issue: they don't want the price to go too low, clearly, because their economies wouldn't stand it.

"But if the price goes too high then that's going to attract a lot of investment in other parts of the world, principally the U.S. shale producers, because that has a much nimbler time frame but elsewhere, which will lead to high supply coming on stream in due course, which will lead us back to the same situation."

Atkinson was cautious in his praise for the efficacy of the cutbacks to date: qualifying his remarks by stating that OPEC is only into the second month of reductions, he said, "the signs are quite encouraging that production has been cut back significantly for the month of January."

He added that finding a sweet spot for oil prices is crucial for the cutback participants.

Earlier this week, evidence that OPEC's initiatives may have limited effectiveness in reducing global oversupply came in the form of  Thomson Reuters Eikon data, which showed that the cartel's oil supplies to Asia rose by 7 percent between November and January, to 17 million barrels per day (bpd).

Tushar Bansal, director at Ivy Global Energy, explained that "The last thing OPEC ... would want is that as they develop newer markets outside the region, some other players like Rosneft or Venezuela [would] increase their market share in what is their backyard."

Also this week, Bloomberg data revealed that OPEC cut output by 840,000 bpd in January in an effort to achieve its stated goal of a 1.8 million bpd reduction; however, the data also showed that Nigeria, Libya, and Iran boosted production by a combined 270,000 barrels, meaning that even though the cartel is enjoying an 82 percent compliance rate, its output is 550,000 bpd above its target, or only 60 percent towards reaching its total reduction objective.