Today, oil strategist Julian Lee looks at the challenges facing OPEC+ plans to raise output this year.

The oil market may not be as oversupplied this year as some forecasters have been suggesting. That doesn’t mean it will be much easier for OPEC+ producers to add back supply.

The dire predictions of the International Energy Agency — which sees a 2025 surplus of nearly 1 million barrels a day, even without more OPEC+ oil — are being called into question by some who see a stronger outlook. Standard Chartered has just doubled the size of the global draw on stockpiles it expects this year.

But before you get too excited, it still only sees a supply shortfall of 200,000 barrels a day, based on in-house projections for OPEC and non-OPEC supplies. That’s not going to raise many cheers among producers.

Improved compliance with output quotas by several key members of the alliance has been a cause for optimism. But I remain skeptical.

Iraq quickly undermined hopes that its lower December production was the result of a new-found determination to meet its target, blaming the drop on power outages at its largest oil field.

Official figures from Moscow showed output below target last month, for only the second time in nearly two years. But that was because Russia’s quota increased, not because it pumped less oil.

The group will face more challenges in the weeks ahead.

South Sudan has asked producers to raise production after its northern neighbor reopened a vital pipeline that was idle for almost a year. That could soon add 100,000 barrels a day to supply.

Kazakhstan will also increase capacity at its giant Tengiz field and may struggle to prevent persistent overproduction from rising even further. The energy ministry still sees output expanding by 10%, or about 160,000 barrels a day, this year, despite trimming earlier plans.

Finally, a global stock draw in 2025 isn’t yet a widely held view. BNP Paribas SA analysts warn that “crude prices have risen too much, too soon” and Brent, currently above $76 a barrel, will “fall back to the low $70s” once seasonal refinery maintenance begins. Bank of America Corp. is even more pessimistic, forecasting a $65 average price for a barrel.

A burst of cold weather in some key oil-consuming regions has boosted energy demand, but it’s still too early for producers to call victory.

–Julian Lee, Bloomberg News