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The
monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil ended
2016 with a $6.00 (13.1%) gain in December, to $51.66 per barrel. The increase occurred
despite a much stronger U.S. dollar, the lagged impacts of a 242,000
barrel-per-day (BPD) drop in the amount of oil supplied/demanded in October (to
19.6 million BPD), and relative stability in accumulated oil stocks.
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Where
oil prices go from here depends upon the outcomes of two major
issues: First is the degree to which Trump administration policies
translate into increased U.S. energy production. The second involves how all
the myriad factors surrounding the 1.8 million BPD OPEC/Russia oil production
cut net out. The OPEC deal is now in effect, but several weeks or months will
be required to assess how closely cartel members are adhering to their quotas.
A related question is how much U.S. shale oil producers will increase
production in response to the OPEC cut. The U.S. shale oil rig count continues
to climb as oil prices make their way into the $50s. Analysts are estimating
that prices will average about $58 a barrel in 2017 -- very close to what some
claim is now the breakeven point of $60 a barrel in many shale oil locations.
The foregoing comments represent the
general economic views and analysis of Delphi Advisors, and are provided solely
for the purpose of information, instruction and discourse. They do not
constitute a solicitation or recommendation regarding any investment.
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