OPEC is following through with the promises to cut output. With the release of confirmed production data from Reuters on Jan. 31, January OPEC output on average was 1 million barrels of oil per day (MMbbl/d) lower than December —a compliance rate of 82% vs. its proposed cut of 1.2 MMbbl/d.

Data released on Jan. 31 confirmed that Russian oil production fell by 100 Mbbl/d during the same time period, representing one-third of its promised production cut by the end of the first half of 2017.

What does this mean for the balancing of the market?

The chart below reflects the market in a world where OPEC and non-OPEC producers hit 60% of their expected production target of 1.2 MMbbl/d and 600 Mbbl/d, respectively. Time will tell whether 80% or higher is maintained throughout the coming months.

But this most likely trend will face a significant number of headwinds that will take time to materialize. Here are some of the key issues that our analysts are watching:

Continued compliance rates: Despite the latest data release, history has taught the oil market that OPEC has a tendency to underperform its targets. While core OPEC nations like Saudi Arabia are likely to have strong compliance, Venezuela, Iraq and Ecuador are less likely to comply. Additionally, countries like Libya and Nigeria—which are excluded from the deal—could see a rapid return of production in 2017 if their security situations improve.

Trump administration: The election of President Trump saw a substantial bump in equities pricing for names in all parts of the oil and gas value chain, while the appointment of cabinet members like Rex Tillerson represents the likelihood of a more energy-friendly administration. Questions remain, however, around how Trump's policy proposals will materialize and what direct impacts they may have on the market.

PODCAST: Listen to Jeff Quigley analyze the OPEC cuts on the Political Sidetrack podcast.

While the approval of the Keystone XL and Dakota Access pipelines, the opening of federal lands for drilling and a proposed rollback of Obama-era climate regulations are all bullish signs for oil and gas supply, proposed border adjustments for imported goods, shifts in tax policy and the future of the Iranian nuclear deal are likely to contribute to volatility over the next 12 months.

To read more about headwinds to rebalancing, like U.S. shale, geopolitics and the global economy, subscribe to Stratas Advisors’ Short Term Outlook.