After bottoming near $26 per barrel in February, WTI oil prices have been improving in 2016, closing above $51 on Friday, the highest level since July 2015.
With a new OPEC deciding to forego its geopolitical differences in the name of economic survival and a new U.S. President-elect with a decidedly pro-business, less regulatory bias cabinet, are we about to see a new and improved oil market in 2017?
Any mention of a reduction in OPEC supply is met with some amount of market skepticism. While I do not expect much compliance from Algeria, Angola, Ecuador, Gabon, Qatar and Venezuela, if the big three, Saudi Arabia, Kuwait and the United Arab Emirates cut production a total of 750,000 barrels per day as they have agreed to, higher prices are ahead. If non OPEC countries led by Russia cut even half of their promised 300,000 barrels per day, so much the better.
And while the market has been laser focused on the oversupply situation, world demand continues to grow. The International Energy Agency predicts that world oil demand will grow by 1.2 million barrels per day in 2017 (in line with 2016) after increasing by 1.8 million barrels per day in 2015. The market looks much better balanced in the second half of 2017 with some forecasting the oversupply to disappear even sooner.
While OPEC compliance is today's number one concern for better days ahead, North American oil producers and oil service providers have figured out how to make money at $50 or less.
So where to invest? Deep in the Heart of Texas, in the Permian Basin. Followed by, no not North Dakota, but Canada.