PARIS, France (AFP) — OPEC said yesterday oil producers have kept their promises to cut output, but the oil price plunged as traders doubted that they are doing enough to offset a global supply glut.

Prices rose in February after a landmark deal between OPEC members and some non-members gained traction, the Organisation of the Petroleum Exporting Countries said in its monthly oil report.

The oil price recovery was, however, under threat from fresh supply as high-cost producers in the United States started drilling again, encouraged by the price upswing, as well as from rising Canadian production.

An OPEC oil price reference basket rose by about two per cent to an average of US$53.37 in February, the organisation said.

“High compliance with supply adjustments by OPEC and some non-OPEC producers supported gains,” it said.

In December OPEC agreed with 11 non-members, including Russia, to cut output in the first half of this year to push prices higher.

PLACING BETS

Looking at the oil futures market, a key gauge of pent-up demand, OPEC said a record number of investors were placing wagers on price increases.

“Bets on crude oil prices rising have hit a new record high for the third month in a row, giving additional support to oil prices,” OPEC said.

“Investor optimism over the effectiveness of the production adjustments encouraged record bets on a sustained rally,” it said, adding however that “growing US output and stubbornly high stockpiles kept price gains in check and contained prices within a tight range”.

The oil price has seen a strong recovery from 2016 lows and is currently close to 30 per cent up from levels a year ago.

But the rally has been stuttering in recent weeks as a cocktail of threats to the recovery has emerged.

Investors are nervous because of a surprisingly big jump in US stockpiles reported last week, increased US shale production, and concerns about implementation of the OPEC-led deal to cut output.

And following the OPEC’s report yestersday, oil prices went into a “mini free fall”, as Forex.com analyst Fawad Razaqzada put it.

In the European afternoon, WTI oil stood at US$47.63 per barrel, down 1.6 per cent on the day; and Brent at $50.60, down 1.4 per cent.

Both contracts are now trading more than six per cent lower than three months ago.

SERIOUS QUESTION MARKS

Razaqzada said traders were blaming a higher OPEC forecast for oil supply from outside the cartel for yesterday’s price downturn.

“In the US, shale producers have ramped up drilling activity and increased oil output in response to higher prices,” he said. “This has put serious question marks over the OPEC’s attempts to balance the oil market.”

There were also mutterings about OPEC’s own members breaking ranks over the new production targets, including kingpin Saudi Arabia, the world’s biggest exporter of oil.

According to a table in the report, Saudi Arabia actually reported an increase in oil production for February, saying it pumped 10.011 million barrels per day (mbpd) last month, up from 9.748 million in January.

“Oil is under renewed pressure as Saudi Arabia’s production increased to over 10 mbpd again, according to OPEC report,” Shawn Koopman, an analyst with trading firm Ava, said in a tweet.

OPEC does not predict oil prices, but the organisation did revise up its supply outlook for this year in an acknowledgement that fresh drilling in the US was having an impact on efforts to reduce a glut in the market.

“An improving outlook for Canadian oil sands and US supply were the main contributors to the revision” it said.

US RIGGING UP

In February, “growing US output and stubbornly high stockpiles kept price gains in check and contained prices within a tight range”, it noted.

Citing a survey by Baker Hughes, an oil firm, OPEC said the number of American oil rigs had risen for seven consecutive weeks and was now 55 per cent higher than a year ago.

Oil investors have been wondering whether OPEC might extend its current output deal to counter rising production elsewhere, but the report did not address that question.

Meanwhile, rising global demand for oil will help rebalance the market, OPEC projections showed.

The cartel boosted its 2017 outlook for demand growth to 1.26 million barrels per day, an increase of 70,000 barrels a day from last month’s outlook.

OPEC’s 13 member countries together produce one-third of the world’s oil.