The International Energy Agency is urging OPEC countries to swiftly deliver on promised production cuts if they want to see a sustained increase in oil prices that will also help shore up their economies.
In its monthly report Tuesday, the global watchdog said production from the Organization of the Petroleum Exporting Countries hit a record high in September of 33.64 million barrels a day. Iraq produced more oil than ever, while Libya reopened oil ports.
Further boosting global supply levels is the fact that production in non-OPEC member Russia hit a post-Soviet record.
While supply is running high, the IEA said demand is slowing along with the global economy - a combination that could pressure oil prices. The IEA forecast that the market will remain oversupplied through mid-2017 if OPEC doesn't enact last month's pledge in Algeria to cut supply to between 32.5 and 33 million barrels per day.
“OPEC has abandoned its free-market policy set in train nearly two years ago. Global oil inventories are far too high - in the view of some producers - and they aren't being worked off nearly fast enough,” the IEA said. “The current price of oil has caused discomfort for all producers.”
At last month's meeting, OPEC countries said the specific details of the overall production cut would be ironed out at a meeting in Vienna November 30. Timelines and country-by-country breakdowns have still to be worked out, though Iran, Libya and Nigeria may be exempt from the cuts for various reasons.
“Now the real work starts,” the IEA said.
It's also unclear how much non-OPEC members, notably Russia, are willing to play along. Russian President Vladimir Putin intimated at a meeting in Istanbul on Monday that Russia was ready to support OPEC, which further buoyed oil prices.
Oil prices are running near one-year highs following the pledge, having risen around 15 percent over the past two weeks. In Tuesday morning trading, light profit-taking saw a barrel of benchmark New York crude fall 4 cents to $51.31 a barrel while Brent, the international standard, was down 18 cents at $52.96 a barrel.
Though way up from earlier in the year, when they fell below $30 a barrel for the first time in more than a decade, oil prices remain well down on levels seen beforehand.
In the summer of 2014, oil prices were trading above $100 a barrel but increased output from non-OPEC countries, particularly the U.S., created an oversupply in the market. Instead of cutting production, OPEC opted to pump at high volumes to maintain market share and, seemingly, to drive U.S. shale oil and gas producers, who have higher operating costs, out of business.
Analysts said a failure to push through the planned cuts could well see oil prices sink again.
“We still need to see if OPEC follow-through on their word though and there are still the all-important country-level quota details to hammer out which could have the potential to be a sticking point,” said Deutsche Bank strategist Jim Reid.