OPEC will have to extend its oil output curbs in order to sustain a recovery in prices, as a revival in crude production outside the group may scupper its efforts to erode an overhang of unused inventory, a poll of market analysts showed on Friday.
Six of the 10 analysts polled by Reuters said they believed OPEC will extend its output cuts beyond June this year, while two felt the group did not need to extend the deal and a further two were undecided.
"If OPEC is genuinely pursuing an inventory target, then an extension to current supply restraint is needed," BNP Paribas analyst Harry Tchilinguirian said.
"But given recent producer statements suggesting that a rollover of this policy is contingent on cooperation, OPEC will face a conundrum as to what to do next when it meets again in May," Tchilinguirian added.
In its monthly report on Tuesday, the group said oil inventories rose in January despite a global deal to cut supply and raised its forecast of production in 2017 from outside the group, suggesting complications in the effort to clear a glut.
But the group maintained that stockpiles will begin to fall thanks to the supply cut, and added that in the second half of the year "the market is expected to start balancing or even see the start of a drawdown in oil inventories."
"If the group's main ambition is to effectively reduce global crude stocks toward their five-years average, then OPEC must deepen its cuts and fix a quota for exempted members," said Intesa Paolo analyst Daniela Corsini.
"Total OPEC production should be capped around the current level of about 32.1 million barrels per day, well below the 32.5 mb/d which would balance markets this year. If OPEC's main goal is simply to sustain crude prices above $40-45 then an automatic roll-over of the existing agreement could be enough."
The Organization of the Petroleum Exporting Countries is curbing its output by about 1.2 million barrels per day (bpd) from Jan. 1, the first cut in eight years. Russia and 10 other non-OPEC producers have agreed to jointly cut by an additional 600,000 bpd.
Strong compliance by OPEC has helped the price of oil rally, but gains have been tempered by rising U.S. oil production.
Brent crude LCOc1 has averaged about $55 this year but prices touched a three-month low earlier this week on concerns over excess supply in the market following an increase in U.S. output.
Reuters last week reported senior Saudi energy officials had warned top independent U.S. oil firms not to assume OPEC would extend output curbs to offset rising production from U.S. shale fields.
"The recovery (in shale production) may be a bit stronger than OPEC anticipated which may be a similar situation of the years up to 2015," ABN Amro analyst Hans Van Cleef said.
"Whether the fight for market share will return will strongly depend on the future development of non-OPEC production/non-shale production in regions where investments were cut back significantly," Van Cleef added.
Goldman Sachs said oil demand was set to overtake supply in the second quarter of this year and it was not in OPEC's interest to extend the deal beyond six months as the group's aim was to normalize inventories and not support prices.
"In the short term, crude prices are likely to remain volatile. However, further down the road, we remain confident of meaningfully higher oil prices this year as they are required to bring the global oil market into balance," said Raymond James analyst Muhammed Ghulam.
"In our view, we are currently in the early stages of a multi-year energy up-cycle, and the recent correction represents a buying opportunity for investors."
(Reporting by Vijaykumar Vedala in Bengaluru; Editing by Amanda Cooper and Susan Thomas)