It has been a tough slog for the oil market this year as it has attempted to recover from one of its worst downturns in decades. Thanks to a combination of improving well productivity and some old-fashioned greed, supplies remain elevated, which has kept a lid on prices.

That said, according to the latest market report from the International Energy Agency, there is some good news in the most recent data. The underlying fundamentals of the oil market seem to be improving, which is a positive for investors, though it will likely remain a slow grind for the foreseeable future.

Two green oil wells sitting under a dark stormy grey sky in the summer time.

Image source: Getty Images.

Drilling down into the latest data

According to the IEA, global oil supplies increased by 520,000 barrels per day (Bpd) last month, which is the third straight monthly increase. Overall, crude supplies are up 500,000 Bpd versus last year. One of the culprits was OPEC, which saw its output rise 230,000 Bpd last month to a 2017 high of 32.84 million Bpd. Fueling that increase was a burst in production from Libya, which is exempt from the OPEC production reduction agreement, and a weaker compliance rate from members that had pledged to cut their output. Meanwhile, production growth in the U.S. thanks to shale drilling remains robust and is on pace to expand by 600,000 Bpd this year, accounting for nearly all the non-OPEC growth.

That said, on a more positive note, demand growth continues accelerating. The IEA now sees demand growing by 1.5 million Bpd this year, reaching 97.6 million Bpd, which is up from last month's forecast growth of 1.4 million Bpd. Because of robust demand, global oil stockpiles fell 19.3 million barrels in June. Though, they remain 219 million barrels above the five-year average. Those elevated stockpiles have continued to weigh on crude prices this year, which have trended well below the initial forecast that prices would average $55 per barrel this year.

An oil drilling rigs with pump jacks.

Image source: Getty Images.

Is shale helping or hurting?

One of the persistent problems in the oil market has been the reluctance of producers to slow the flow of oil. That's because many are trying to offset the impact of lower prices on their bottom line by pumping out higher volumes. It's an issue OPEC has tried to address by agreeing to an output cut and cap, which it recently extended into 2018. However, it has not only experienced dwindling compliance with that cap but the two producers not subject to the agreement, Libya and Nigeria, have opened their taps wide this year.

On the other hand, shale drillers, which had ramped up their drilling activities earlier this year, have noticeably pulled back in recent weeks. For example, leading Bakken Shale driller Whiting Petroleum (NYSE:WLL) sliced $150 million off its drilling budget, bringing it down to $950 million for the full-year. Because of that, Whiting only expects its output to increase 14% by the end of this year versus where it was at the end of last year. That's down from Whiting's initial estimate that it would jump 23% by year-end.

Meanwhile, due to some unforeseen drilling delays, Pioneer Natural Resources (NYSE:PXD) plans to defer the completion of 30 wells into next year. That move will save Pioneer $100 million this year and will result in its output only growing 15% to 16% versus last year's average, which is down from an initial forecast that production would rise 15% to 18%. 

Overall, most shale drillers announced a budget cut when they reported second-quarter results this summer. However, at the same time, many did not take down their 2017 production estimates. In fact, several increased their forecast because improving well productivity and efficiency gains are enabling them to do more with less. For example, Marathon Oil (NYSE:MRO) cut its 2017 budget by 10%. However, despite that reduction, Marathon Oil expects its output from U.S. resource plays to rise 23% to 27% by year-end, which is above its 20% to 25% initial forecast. Because of this dynamic, it's almost like shale drillers are taking as many steps back as they're moving forward. Though, the fact that many are pulling back on spending means that output still won't be as high as it could have been, which is a positive for the market because it will help it from growing oversupplied again.

The forecast is generally positive though not exactly bullish

The recent data from the IEA, when combined with a steady stream of updates from shale drillers, is a mixed bag for the market. That said, for an industry that had been plagued by nothing but bad news for several years, anything positive is a welcomed sight. While this suggests that oil stocks could muddle along in the near-term as the market digests not only the recent updates but the changing dynamics of supply and demand, the longer-term picture does seem to be getting brighter.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.