U.S. producers, eager to get rigs back to work in the Lower 48, may be the drag on strengthening oil prices after global output increased to 9 million b/d in March from a trough of 8.6 million b/d last September, the International Energy Agency (IEA) said Thursday.

In its closely watched monthly oil market report, the global energy watchdog said U.S. production now looks to be 680,000 b/d higher this year from full-year 2016, potentially putting the kibosh on higher oil prices.

“It can be argued confidently that the market is already very close to balance, and as more data becomes available this will become clearer,” IEA said. However, as U.S. unconventional output is a bit of a wildcard, with operators able to ramp up or down quickly, IEA said, “We have an interesting second half to come.”

The global oil market “will likely tighten throughout the year,” but overall production outside of the Organization of the Petroleum Exporting Countries (OPEC), especially the United States, “will soon be on the rise again,” IEA said. “Even after taking into account production cut pledges from the 11 non-OPEC countries, and unplanned outages in Canada as well as in the North Sea, we expect production will grow again on a year/year basis by May.”

Full-year global oil output overall now is seen up by 485,000 b/d, versus a decline of 790,000 b/d in 2016.

“The main impetus comes from the U.S., where monthly data shows that output reached 9.0 million b/d in March, up from a trough of 8.6 million b/d in September 2016,” IEA said. “We now expect that U.S. production will be 680,000 b/d higher at the end of the year than it was at the end of 2016, an upgrade to our previous forecast.”

Meanwhile, global oil demand for the second year in a row continues to grow more slowly than anticipated, IEA said Thursday. The 2017 demand forecast was reduced to 1.3 million b/d, but IEA warned the new estimate still may be too optimistic.

“New data shows weaker-than-expected growth in a number of countries including Russia, India, several Middle Eastern countries, Korea and the U.S., where demand has stalled in recent months. After upgrading demand estimates for 2Q2017 and cutting it for the second half of the year, we are left with growth for 2017 at 1.3 million b/d rather than the 1.4 million b/d previously forecast.”

OPEC, which launched an effort this year to reduce output temporarily by almost 1.8 million b/d, reported production fell by 365,000 b/d in March, bringing the cartel’s supply commitment cuts to 99%, according to IEA. Global producers, including Russia, which are participating with OPEC in cutting oil output, improved their compliance to 68% in March from 38% in February, IEA said.

The improved compliance rates may play out as OPEC meets in late May to consider extending the production pullback.

However, IEA noted that the reduction by OPEC and its allies has so far done little to reduce the amount of stored oil, which grew in 2015 and 2016. One of OPEC’s goals in cutting production was to drain storage to more manageable levels.

Following IEA’s report, energy analysts weighed in.

Analysts with Tudor, Pickering, Holt & Co. asked, “Remember the ‘OPEC always cheats’ mantra leading up to and directly after the OPEC agreement? Not so much, as…OPEC compliance is high. We think this is a positive read-thru to OPEC’s intentions/potential action at the May 25 meeting as we expect an extension of the cuts through year-end…

“OPEC will certainly remain focused on U.S. activity growth (as will all global oil producers) but further activity increases will impact supply in 2018…there will be no more clarity on the magnitude of U.S. supply growth by the May 25 meeting. In almost every scenario it makes sense for OPEC to extend the cuts.”

Sanford Bernstein analysts said OPEC policy and U.S. shale growth “remain the most important wildcards. We expect OPEC to continue their policy when they meet at the end of May. With a stated target to drain surplus inventories of 340 million bbl, there is still more to do…

“While U.S. production has been stronger and more resilient than we expected, it will not be enough to prevent massive inventory reductions as we head into 2Q2017. As such, we still see the risk-reward in oil prices to the upside.”