OPEC Compliance Falls Alongside Another U.S. Crude Price Drop, but Experts Still See Upside to 2017

The Oil Search boss pegs crude prices at "a solid" $50-$55 for the rest of this year.

As Tuesday saw U.S. crude prices settle down 2.4 percent to $47.66, a Reuters survey suggests that more volatility lies ahead with the disclosure that compliance with the Organization of the Petroleum Exporting Countries (OPEC) cutback initiative is weakening, thanks to Angola and the United Arab Emirates producing more than it should.

The survey, based on shipping data provided by external sources, Thomson Reuters flows data, and information provided by sources at oil companies, OPEC and consulting firms, showed that compliance has slipped from 92 percent in March to 90 percent, with Angola starting production at its East Pole field in February and UAE output "higher than originally thought" although its output figures still fell.

Total OPEC output in April averaged 31.97 million barrels per day (bpd), about 220,000 bpd above its supply target.

As usual since the beginning of the OPEC cutbacks, Saudi Arabia continued to do most of the heavy lifting to compensate, reducing output by 574,000 bpd in April, well above its 486,000 bpd target.

And while the survey pegged Libya's output as having dropped in April, it was reported this week that its production has since risen above 760,000 bpd and will keep boosting output; this caused Phil Davis, managing partner at PSW Investments, to worry that "We've got more output from Libya and the United States and there is no certainty OPEC will keep production cuts in place at their meeting in May."

But even though compliance is slipping, OPEC has not yet decided to extend its cutback initiative, and all indications are that production will increase even further from a multitude of sources, many analysts are maintaining their upbeat near term market outlook.

Peter Botten, CEO of Oil Search, told CNBC, "I think OPEC will continue to be disciplined and continue the broader cuts."

He added that this balances out booming U.S. shale production, with the resulting forecast being "$50-$55 solid for the rest of the year......I think we're well situated."

It's worth noting that a "solid" $55 is still below the $50-$60 range that was up until recently considered fairly unambitious and a band that Fereidun Fesharaki, founder and chairman of FGE, credited OPEC for establishing as an acceptable outcome of its cutback initiative.