Oil rose above $55 per barrel on Wednesday after a leading non-OPEC country in the oil cut deal, Russia, made its first cut.
Although report showed a huge rise in U.S. crude inventories limited gains, Russia cut production in January by around 100,000 barrels per day (bpd).
According to traders, this step by especially Russia, shows high compliance by both OPEC and its counterpart to go through with the agreed cuts, and boost price.
Brent crude LCOc1 was up 37 cents at $55.95 a barrel at 1250 GMT, rising as high as $56.08.
Although Russia and OPEC are making frantic efforts towards reviving oil price, persistent excess supply in the United States. U.S. crude inventories which rose by 5.8 million barrels, keeps threatening the industry. A rise in U. S supply glut of 5.8 according to data provided by the American Petroleum Institute said on Tuesday, is even more than analysts forecast.
“The oil complex remains firmly stuck in its narrow range after the API reported an unrelenting increase in bulging U.S. petroleum stockpiles,” Stephen Brennock of oil brokers PVM said.
“Any hopes of a sustained recovery in price will depend on increasing efforts by OPEC to curb output though the prospect of an upside breakout will be undermined by the budding revival in U.S. crude production.”
After API’s report on Tuesday, analysts expect crude stocks to rise by 3.3 million barrels.
Last year, both OPEC and non OPEC agreed to lower supplies by a combined 1.8 million bpd, to push up prices which are still half their level of mid-2014.
Russia’s cut of 100,000 bpd would be a third of Moscow’s pledge to reduce its output by 300,000 bpd. However, Russia has said that its planned output reduction would be gradual.
OPEC has implemented most of its cut. Business Times survey on Wednesday found that OPEC members in January, already cut about 82 percent of their deal to lower supply by 1.16 million bpd.
“With data now coming out for the first month affected by the OPEC and non-OPEC output cuts, it appears fairly safe to say that compliance with the pledged reduction has been relatively high,” analysts at JBC Energy said in a report.
JBC estimates shows OPEC had delivered on 88 percent of its pledged reduction. Petro-Logistics, a company which tracks OPEC supply, also estimated compliance to be high.
Nigeria was left out of the cut deal due to its challenge with oil militants in the Niger Delta which crushed its oil production and export.
However, the Minister for Petroleum, Emmanuel Ibe Kachikwu, recently said Nigeria will join the cut output if its production reaches 1.8 million barrels per day.
Kachikwu said he believed oil will climb by about $10 in the coming months.
“Ultimately, the effects over the next few months will get us to where we want to be, which is in the mid-$60s,” he said.
Nigeria is putting everything in place, including the refineries, in order to boost production as it recovers from the attacks, which targeted pipelines and other infrastructure.
The nation now produces about 1.5 million barrels a day and the government is improving its engagement with communities in the Niger Delta as it seeks to increase production.
Once crude oil production returns to about 1.8 million barrels a day, “then we’ll begin to look at OPEC asking us to do some cuts,” he said.
Kachikwu said that while Nigeria “probably will struggle” to reach that output level, the country would eventually join the cuts if production rises high enough. “There’s a willingness of every OPEC member to contribute,” he said.
The United States’ increase in market supply by 5.8 million glut came after the country’s newest President, Donald Trump, vowed to end dependence on OPEC’s oil.
After his inauguration, Trump said he was “committed to achieving energy independence from the OPEC cartel and any nations hostile to our interests,” by exploiting “vast untapped domestic energy reserves”.
The U.S. imported about 3 million barrels a day from OPEC last year, with Saudi Arabia and Venezuela accounting for 1.81 million.
Saudi Arabia exported an average of 1.08 million barrels a day of crude to the U.S. in 2016, while Venezuela shipped about 733,000 barrels a day and Iraq some 400,000 barrels a day.
Nigeria has since last year, witnessed a drop in crude quantity it exports to the U. S.
In 2016, India and the United States slashed their imports of Nigerian crude oil by 43 per cent and 53 per cent, respectively, totalling to a loss of at least N88bn in earnings, according to report from the Nigerian National Petroleum Corporation, NNPC.
The US, whose imports of Nigerian crude rose by 577.8 percent in the first quarter of 2016 compared to the same period of 2015, reduced its import by 5.77 million barrels in May 2016 from 10.13 million barrels in the previous month.
In February 2016, the US bought as much as 12.12 million barrels from Nigeria, making it the second largest buyer of the country’s crude after India.