Opec agreed, in November, to cut output by 1.2m barrels of oil per day (bpd) to 32.5m bpd for the first six months of 2017, in addition to 558,000 bpd of cuts agreed by independent producers, such as Russia, Oman, and Mexico.
“I would expect that we will see a rebalancing of the markets within the first half of this year,” said Fatih Birol, executive director of IEA, the Paris-based global energy watchdog.
“But what I want to say (is) that we are entering a period of much more volatility in the market...the name of the game is volatility,” he added.
Prices fell on Friday, and ended the week 3% lower, on lingering doubts over the extent of OPEC cuts, with sentiment worsened by concerns over the economic health of the world’s second-largest oil consumer, China, after it reported the steepest falls in overall exports since 2009.
Birol said that although the OPEC agreement could signal higher oil prices, it would also encourage more production from the United States and elsewhere. Higher prices could also weaken global demand for oil, he added.
“I expect US shale oil will go back to increasing production this year,” Birol said.
He added that a recent trend of declining Chinese oil production, due to low prices, could be reversed, if the market strengthened.
Data from the US Energy Information Administration showed crude production rose notably last week, particularly in 48 southern states. Overall production was 8.95m bpd last week, the most since April of last year.
Opec and the independent producers are cutting supplies to remove a global glut and to prop up prices, which, at around $56 a barrel, are half their level of mid-2014, hurting the revenue of exporting nations.
Birol said his main concern, now, was lack of investment in new oil supplies, after low prices over the past two years forced the shutdown of many projects across the world.