US Oil Inventories Surge Despite 90% OPEC Compliance

Brent crude futures were trading at.77 per barrel at 0750 GMT up 12 cents from their last close. U.S. West Texas Intermediate crude futures were up 7 cents at.43 per barrel

Initial signs are that OPEC in January achieved a record rate of more than 90 percent compliance with the accord.

"We expect the (compliance) figures to be encouraging in February", Mohamed al-Rumhi told reporters at an oil conference in Kuwait City.

"OPEC producers want the market to believe they will stick to the agreed production freeze (cut)".

Oil prices have been on the upswing since OPEC members and major non-OPEC producers agreed to significant cuts in production output. The larger-than-expected build in crude inventories pushed crude inventories above the upper limit of the average range for this time of year, totaling 518.1 million barrels.

Nigeria's problems with production are linked to attacks on installations by militants in the Niger Delta region. Two of them are structural; the growth in Canadian production and the likely understatement of United States production in the weekly data. Non-OPEC member Russian Federation surprised markets by also agreeing to adhere to production cuts.

Substantial budget deficits in oil-dependent countries caused by low crude prices are creating an incentive to stay honest, according to Yergin. Benchmark prices rose about 20 percent over the same period. The nearest Brent and West Texas Intermediate contracts remain in a structure known as contango, which typically occurs when there is too much supply, depressing short-term prices.

The bulk of Iraq's oil is exported via the southern terminals. The promise was to take production down to 32.5 mb/d on average over six months, and total output in January stood at 32.9 mb/d. Moreover, the euro zone remains sluggish, Japan is weak because of demographic trends, and the still subject to policy uncertainty.

Demand forecasts from the US and countries like China and India will also factor heavily into the market's assessment of whether the OPEC cuts are effective enough to clear the oversupply. The unexpectedly high rate is nearly exclusively courtesy of Saudi Arabia.

After falling for much of last year during the two-year industry bust, USA oil production is again on the rise, driven largely by the surge in West Texas' Permian Basin. The demand outlook is daunting for the longer term, particularly in light of companies slashing capex cuts in 2015-16 and OPEC's return to production cuts.

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