Oil should rise in 2017.
Oil should rise in 2017.

The last day of trading, Dec. 30, underscored what could be an interesting year for the oil market in 2017. Markets opened Friday morning with Brent crude and West Texas Intermediate futures price declines, before new data from the Energy Information Administration buoyed investor confidence and sent prices back up. Compared to 2016, next year is estimated to see annual price gains not seen since 2009.

Reuters reported that since 2014, the price of oil per barrel has halved, with oil companies from virtually every nation taking huge hits financially. This precipitous drop forced many private businesses to shed jobs and scale back investment plans while government-sponsored oil conglomerates maintained production levels albeit with severely reduce profit margins.

In 2017, analysts are predicting the oil market will recover some of the losses it endured in the last few years. While it will be some time, if ever, before prices reach their former peaks, most industry insiders are expecting a slow rise topped off with $60-$70 oil.

What could be in store for 2017
According to The Wall Street Journal, crude stockpiles grew slower than expected last week based on EIA figures. With over-supply dwindling, prices inched upward – a good sign for the oil environment next year.

On London’s ICE Futures exchange, Brent crude hit $57.06, a 0.4 percent daily jump. West Texas Intermediate also rose 0.4 percent, reaching $53.99 a barrel.

Analysts chalked up the slowdown in stockpile build to less activity in the refinery sector. Further, the American Petroleum Institute had previously projected stockpiles to rise by 4.2 million barrels the week ending Dec. 23; however, the actual figure came in at just 614,000.

The somewhat volatile nature of predicting market movements before hard data is released is intrinsic in how investors view the oil industry – prices change very quickly and forecasts that once seemed feasible one day can easily be wiped out the next.

Regardless, most analysts believe prices are on a strong upward trajectory, putting oil companies in a better position in 2017.

Dynamics to factor in
There are a number of components that could actually propel oil prices even higher than preliminary estimates or depress them back down to 2016 levels.

Perhaps the biggest elephant in the room is OPEC. The world’s largest oil cartel has promised to curtail production next year, and has agreements from all member-nations as well as Russia documenting such. However, Forbes contributor David Blackmon noted it could be relatively easy for OPEC to renege on its responsibilities or even just fudge their numbers.

If OPEC nations deliberately misreport their production and delivery numbers – in an effort to maintain their individual market shares – the global landscape would be even more imbalanced than ever. But holding the cartel to their agreements will mostly be an internal matter – there’s no real mechanism for outside forces to mandate compliance with the organization’s own statutes.

A few of the other larger factors at play will be how the Trump administration’s policies will play out if enacted. With Republican majorities in both chambers of Congress, the likelihood of a large infrastructure spending bill paired with significant corporate tax cuts becoming law is actually fairly good. If these policies do in fact reach the light of day, oil companies may save money and choose to re-invest in new drilling operations. This could provide U.S. drillers the margins they need to jump back into the marketplace, effectively offsetting OPEC’s drawdown.