"OPEC Oil Cuts Are Holding, But The Demand is Not There": Analyst

While the OPEC output cuts are holding, one analyst says "the demand is not there"

As minimal as the Organization of the Petroleum Exporting Countries' (OPEC) cutback agreement has been in reducing the global oil glut, BK Asset Management says the current market is so fragile that unless the cartel stays on course, the modest price gains made by crude could easily tumble.

Boris Schlossberg, managing director of foreign exchange strategy for BK Asset, told CNBC that oil is in "a very dangerous zone" and that "the irony of this whole thing is that OPEC cuts are holding, but the demand is not there; and

"And if it trips to $50 a barrel stops, I think it could really tumble very quickly; so I think we're in a perilous territory."

While Schlossberg's view isn't shared by everyone, there's no question the market has underperformed compared to what OPEC boosters insisted would be the outcome of the cutbacks coupled with a high compliance rate: crude oil has slumped 2 percent since the agreement took hold, and worldwide demand growth is problematic.

The anemia plaguing the industry was reinforced by the latest report from the International Energy Agency, which, although revising up its 2016 growth estimates for global oil demand by 1.6 million barrels per day (bpd) based on strong numbers in the final three months of last year, is cautious in its 2017 outlook, forecasting growth at only 1.4 million bpd.

And even though the IEA credited OPEC for posting its first year-on-year decline since early 2015, the total impact of a nearly 1.5 million bpd cut in January has resulted in world oil production at 96.4 million bpd, just 730,000 bpd less than a year ago – and certainly not enough to satisfy experts who doubt that demand is as strong as some of their colleagues believe.

Moreover, the IEA notes that U.S. producers are taking advantage of the slightly higher prices resulting from the cuts by boosting output to the highest level since April, which in turn is capping prices in the mid-$50s – precisely the level that Schlossberg identifies as the danger zone.

Still, everyone is hopeful OPEC stay on course, and Mark Watkins, regional investment manager for the Private Client Group at U.S. Bank, told Bloomberg,"It's real positive that OPEC is at 90 percent compliance; their credibility is higher than it's been in a long time [and] this proves that they are serious about supporting the price of oil."

Earlier this week, Herman Wang, OPEC specialist at S&P Global Platts, planted a seed of suspicion about the resiliency of the agreement, noting that Algeria, Iraq, and Venezuela are taking advantage of rather than contributing fairly to the cutbacks by pumping above their allotments, and that "how long Saudi Arabia is willing to shoulder the burden of these cuts if it proves some of their cohorts are not fully complying with the deal remains to be seen."