Global crude oil prices are driving fuel prices at the pump, and all eyes are on Opec’s attempts to raise them. There are early signs that production cuts are beginning to bite, but producers are facing an uphill struggle.

Opec and 11 non-Opec oil producers that have joined forces to limit output have been remarkably compliant with their pledges, taking 1.6mn b/d out of the market since the start of January. But a $5/bl price drop on March 8-9 (see graph), triggered by a large crude inventory build in the US, illustrates the magnitude of Opec’s project. The market is still looking for reasons to be bearish.

Sustained over-production in 2015-16 built up record-high worldwide oil stocks, and these are keeping prices low. Reducing this global supply overhang is the key to achieving the price increase that producers are hoping for. Early indications are that the production cuts are eating into the overhang.

In February, Europe saw its largest oil stock draw since June 2012, a marked contrast to 17-year high inventories a year earlier. Stocks in Japan are also falling. And a change in crude futures’ price structure is reversing the pattern of the last couple of years.

When Opec started maximising output to defend market share against US shale oil in late 2014, it swamped the market with more crude than it could use, driving prompt crude prices on Ice to fall far below prices for delivery six or 12 months out, and encouraging stock builds.

By contrast, the current production shortfall is pushing the market towards backwardation, where prompt prices rise above forward, making it economical to draw stocks down. These are early signs,, and prices will only rise significantly if producers maintain their cuts until stocks are back to normal. It increasingly looks like this will take longer than the six months of agreed production cuts. But global stocks remain so far above normal that Opec and its partners may well have to extend production cuts beyond June. And the wild card is US shale production, which is already rising again.

So it will take months before petrol and diesel prices, along with crude, are likely to rise significantly. The only certainty in the meantime is price volatility.