The biggest oil market risk for 2017 is the prospect of a market share war — or at least a showdown — between OPEC and U.S. shale drillers, said Kate Richard, CEO of energy investment firm Warwick Energy.
OPEC's effort to draw down brimming global crude inventories through production cuts bolstered oil prices above $50 through last week. But that rebound made more high-cost U.S. output profitable, leading to a recovery in American drilling that threatens to spoil the cartel's bid to balance an oversupplied market.
It also threatens the oil-dependent economies of the Organization of the Petroleum Exporting Countries.
"What OPEC has shown is that it clearly cannot stomach $40 to $50 oil, whereas the U.S. producers over the past two years have gotten more and more efficient," Richard told CNBC's "Power Lunch," referring to American shale drillers who rely on expensive enhanced drilling methods to squeeze oil and gas from shale rock.
"We've retooled our cost structure. We've become cheaper. We've become more efficient, and we can now make really good money in the core plays in the U.S. at $40 to $50 oil."
Still, Richard noted there is a huge dispersion in potential returns between the haves and have-nots in America's oil patch. Drillers with the best acreage in Texas' Permian Basin and Oklahoma's Scoop and Stack regions can make money with oil prices at $40 to $50 a barrel, while producers in the southern expanse of the Permian and parts of the Rockies will struggle at that level.
Brenda Shaffer, an energy specialist at Georgetown University's School of Foreign Service, sees lower odds of a market share battle erupting between U.S. and OPEC producers. That is because the types of crude grades produced in the United States have a limited number of markets, she told CNBC's "Closing Bell" on Tuesday.
As such, she sees the gap between U.S. West Texas Intermediate crude and international benchmark widening, with Brent trading at a growing premium to WTI.
While the amount of U.S. crude in storage is rising and Saudi Arabia reported that it increased production last month, there are indications that oil prices will rebound beyond the short term, Shaffer said. Those include OPEC's upward revision on Tuesday for global oil demand and moderating stockpiles outside the United States.
Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch, said he too sees the so-called WTI-Brent spread widening. A lower WTI price should incentivize traders to sell more U.S. crude overseas, which would help draw down inventories, he told "Closing Bell."
At the same time, the price of oil for delivery in 2018 and 2019 is falling relative to front-month crude prices, giving U.S. producers a reason to put fewer oil rigs to work drilling new wells, according to Blanch. That aligns with plans by top oil exporter Saudi Arabia under OPEC's production cut agreement, he said.
"The last few days have been a little bit off … but I do think the objective hasn't changed. They want to achieve higher spot prices, lower forward prices," he said.
Now is an ideal time to achieve that goal because crude stockpiles in Europe and Asia have declined, he explained.
"We just need the U.S. inventory piles that we have to come down, and again, that requires a wider WTI-Brent spread," Blanch said.