From Tyler Durden: Oil jumped this morning, with Brent rising 1%, trading above $56 after the International Energy Agency said OPEC had achieved record initial compliance of 90% with planned production cuts – it is unclear how much of this was self-reported and questionable – while demand grew faster than expected.

In the first month of OPEC’s supply cut agreement, key member Saudi Arabia reduced production by 116%, or even more than it had committed, despite Venezuela’s struggles to reduce output (it had achieved only 18% of planned cuts) while higher demand is aiding the group’s bid to re-balance world markets, the IEA said.

The following Bloomberg chart shows alleged deal compliance by nation…

… and the detailed breakdown is shown below:

The IEA, which advises industrial nations on energy policy, said that if current compliance levels are maintained, the global oil stocks overhang that has weighed on prices should fall by about 600,000 barrels per day (bpd) in the next six months. The IEA also estimated that 11 producers including Russia, Kazakhstan pumped 269k b/d less crude in January versus October-November levels, citing preliminary data.

The IEA also increased its 2016 estimates for world oil demand growth for a third month, and boosted its outlook for 2017, anticipating an increase of 1.4 million barrels a day this year. World oil inventories will fall by 600,000 barrels a day during the first half of the year if OPEC sticks to its agreement, the IEA said.

Oil has fluctuated above $50 a barrel since a deal to trim output between OPEC and 11 other nations took effect on Jan. 1. U.S. producers are taking advantage of higher prices by increasing drilling activity and boosting daily output to the highest level since April, a dynamic the IEA said is capping prices in the mid-$50s.

“There is a demand element to this price rise as well as OPEC compliance,” says Michael Hewson, market analyst at CMC Markets. “We’re still short of the highs of the month”

“The key question for the oil market is how long OPEC can sustain this deal,” Spencer Welch, a director at IHS Energy, said by e-mail. “Historic analysis of similar production limits suggests that 100 percent compliance is unlikely.”

While the oil market welcomed the data, which may or may not be accurate as verification remains problematic and recent surges in inventory suggest quite the opposite of what the IEA reports, increasingly more attention has recently fallen on US crude production, especially in light of a recent surge in Permian drilling rigs…

… which threatens to disrupt the much desired supply/demand equilibrium.

The United States Oil Fund LP ETF (NYSE:USO) was trading at $11.51 per share on Friday morning, up $0.16 (+1.41%). Year-to-date, USO has declined -1.79%, versus a 3.37% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #49 of 121 ETFs in the Commodity ETFs category.

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