With OPEC Meeting Done, Economy Set to Drive Oil

Now that OPEC and non-OPEC members have agreed to extend oil production cuts through the end of 2018, the priorities for markets will be global demand and shale oil production. The demand side looks strong for the year ahead, and shale investments will be held back by three factors: a backwardated forward curve (or when near-term futures are costlier than later contracts), a desire by drillers to not get burned like in early 2016 after prices collapsed, and a dwindling number of ideal distressed assets for investors to buy.

Demand was a hot topic at the OPEC meetings in Vienna, referenced repeatedly by OPEC President and Saudi Oil Minister Khalid Al-Falih. Like all commodities, oil is bought and not sold. This means oil demand is the most important driver of prices in the short term. And OPEC’s forecasts for oil demand growth in the year ahead are strong.