A global oil glut has been virtually eliminated, figures published by OPEC showed on Monday, thanks to an OPEC-led pact to cut supplies that has been in place since January 2017 and due to rising global demand.
Despite this, OPEC's latest report also said producers were cutting more than required under the deal, while producers not party to the agreement, such as U.S. shale companies, were starting to face constraints on future output.
Saudi Arabia, the world's biggest oil exporter and de facto leader of the Organization of the Petroleum Exporting Countries, told OPEC it cut output in April to its lowest level since the supply deal began in January 2017.
The OPEC report said oil inventories in OECD industrialised nations in March fell to 9 million barrels above the five-year average, down from 340 million barrels above the average in January 2017.
"The oil market was underpinned in April by renewed geopolitical issues, tightening product inventories and robust global demand," OPEC said in its report.
The deal between OPEC, Russia and other non-OPEC producers has helped oil prices reach $78 a barrel, their highest since 2014. Oil was trading above $77 on Monday, moving up since the OPEC report was published.
The main goal of the supply deal was to reduce excess oil stocks to the five-year average. But oil ministers have since said other metrics should be considered such as oil industry investment, suggesting they are in no hurry to end supply cuts.
Indeed, the report showed OPEC for now is cutting more supply than the group has pledged under the pact.
OPEC output rose by just 12,000 barrels per day (bpd) to 31.93 million bpd in April, according to figures OPEC collects from secondary sources. That is roughly 800,000 bpd less than the amount OPEC says the world needs from the group this year.
Figures reported directly from OPEC members showed even deeper declines in production.
Venezuela, whose output has plunged due to an economic crisis, told OPEC its production fell to 1.505 million bpd in April, believed to be the lowest in decades.
Top exporter Saudi Arabia told OPEC it cut output by 39,000 bpd to 9.868 million bpd, which is the lowest since the supply cut deal began, based on figures Riyadh reports to the group.
Strong growth in demand due to a robust world economy has helped remove the glut. OPEC slightly raised its estimate of growth in world demand this year to 1.65 million bpd.
The higher crude prices that have followed have prompted growth in rival supply and a flood of U.S. shale output. OPEC expects non-OPEC supply to expand by 1.72 million bpd this year, which is higher than the growth in global demand.
But OPEC forecast headwinds to future growth, such as the slow place of oil industry investment and an expected dip next in investment in U.S. shale, also known as tight oil.
"Fast-growing U.S. tight oil production is increasingly faced with costly logistical constraints in terms of outtake capacity from land-locked production sites," OPEC said.
Adding to the impact of OPEC-led cuts, the U.S. decision to withdraw from an international nuclear deal with OPEC member Iran and to renew sanctions has raised concerns about Iranian oil exports, helping drive prices higher.
OPEC signalled the group and its allies were ready to step in should "geopolitical developments" impact supply. Saudi Arabia said last week it was ready to offset any shortage but would not act alone.
"OPEC, as always, stands ready to support oil market stability, together with non-OPEC oil producing nations participating in the Declaration of Cooperation," OPEC said, using its name for the pact on supply curbs.