Global demand for oil continues to pick up as recent measures to rebalance the market have come into play, but a period of sluggishness is still expected to hang over producers in the year ahead, according to the latest report by the International Energy Agency (IEA).

The IEA revised up its growth estimates for global oil demand for the third consecutive month in 2016 to 1.6 million barrels a day (mb/d) after seeing what it considered strong numbers in the last three months of 2016. However, it remains cautious about the outlook for 2017, forecasting a near-term deceleration to 1.4 mb/d.

“Stronger than expected growth in Europe, partly influenced by colder weather in (the fourth-quarter of 2016), is a key factor alongside the long-term growth in China, India and non-OECD countries,” the IEA report said, referring to the uptick.

The shift reflects a recent commitment by OPEC countries and 11 non-OPEC countries to reduce production in a bid to manage supply and demand levels better .

The move saw oil supplies fall nearly 1.5 mb/d in January, according to the monthly report. At 96.4 mb/d, world oil production stood 730 thousand b/d below a year ago, with OPEC posting its first year-on-year decline since early 2015.

OPEC crude production fell by 1 mb/d to 32.06 mb/d in January, leading to a record initial compliance of 90 percent with the cartel’s output agreement. Some producers, including Saudi Arabia, cut supply by more than required, however, lower production was partly offset by higher flows from Libya and Nigeria, which are exempt from cuts.

“We do not forecast what OPEC production will be during the six months covered by the output deal,” the report said, “but if the January level of compliance is maintained, the difference between global demand and supply implies a stock draw of 0.6 mb/d.”

Brazil, Canada and U.S., and other non-OPEC countries outside of the deal, have seen higher flows recently and are expected to see a significant uptick in production over the coming year. According to the IEA, these countries are likely to achieve combined growth of 750 kb/d in 2017.

The net change for non-OPEC production in 2017, taking into account cuts by 11 countries, is expected to be close to a 400 kb/d increase.

Speaking to CNBC Friday, Alex Holbourn, director at Hannam & Partners, said that U.S. production is likely to be the key differential going forward.

“That’s arguably where the marginal barrel of supply is now going to come from,” he said.

“The U.S. could potentially increase production this year somewhere in the range of 300,000 to 500,000 barrels per day … We’ve already seen the rig count tick up month-on-month for the last six months by around 65-70 percent from the lows in May. That’s going to be a key indicator going forward.”