But the Organization of the Petroleum Exporting Countries also raised its forecast for supplies from non-member countries in 2017 as higher oil prices encourage U.S. shale drillers to pump more, reducing demand for OPEC's oil this year.

OPEC is curbing its output by about 1.2 million barrels per day (bpd) from Jan. 1 for six months, the first reduction in eight years, to get rid of a supply glut. Russia and 10 other non-OPEC producers agreed to cut half as much.

Oil prices pared gains on Wednesday after the report was released to trade at around $56 a barrel LCOc1. Prices are still up from about $42 a barrel a year ago, and OPEC was upbeat on the outlook for the market.

"Despite some downside risks, general expectations for demand growth for oil products in the coming months remain bullish," said the report, which made a minor upward revision to its global demand forecast this year.

"The return of refineries from seasonal maintenance and healthy demand, together with the high conformity observed in OPEC and non-OPEC production adjustments, should enhance market stability and reduce the volatility seen in recent weeks."

In the report, OPEC pointed to an increase in its members' compliance with the deal and said oil stocks in industrialized nations fell in February - although they are still 268 million barrels above the five-year average.

Supply from the 11 OPEC members with production targets under the accord - all except Libya and Nigeria - fell to 29.761 million bpd last month, according to figures from secondary sources that OPEC uses to monitor output.

That means OPEC has complied 104 percent with the plan, according to a Reuters calculation. OPEC did not publish a compliance number, but OPEC figures seen by Reuters on Tuesday also put adherence at 104 percent.

But OPEC revised up its estimate of oil supply growth from producers outside the group this year to 580,000 bpd, as higher oil prices following the supply cut help spur a revival in U.S. shale drilling.

"With the pick-up in drilling activity, as well as increasing cashflows in the tight oil industry, U.S. tight crude output is expected to rise quickly and increase 335,000 bpd for the overall of 2017," OPEC said, using another term for shale.

SAUDI PUMPS BELOW TARGET

OPEC said its production, including Nigeria and Libya, fell about 150,000 bpd in March to 31.93 million bpd, as Saudi Arabia continued to make a larger cut than called for by the deal.

While the OPEC secondary sources said Saudi output rose in March to 9.994 million bpd, Saudi Arabia reported to OPEC that it fell to 9.90 million bpd. In any case, both figures are below Riyadh's OPEC output target.

Due to the higher expectations from outside producers, OPEC trimmed forecast demand for its crude in 2017 to 32.22 million bpd - 130,000 less than last month but more than current production, suggesting stocks will drop if output does not rise.

A further rise in supply outside the group could weigh on prices and hinder OPEC efforts to clear the glut, although OPEC officials have said they believe the market can deal with renewed shale growth.

"Shale oil production has defied forecasts in the past and its economics are still improving and evolving," Ibrahim al-Muhanna, a former Saudi oil official said in a speech.

"However, with all the importance and media attention given to it, shale oil is not a primary source of energy."

OPEC meets on May 25 and is considering whether to extend the supply cut deal beyond June. Most members, including Saudi Arabia and Kuwait, are leaning towards this if all producers, including non-OPEC, also agree, OPEC sources told Reuters last month.