An Outlook on the Oil Market for 2018

Late last year Russia and OPEC agreed to extend their agreement to decrease oil production until the end of 2018.  Russia, OPEC, and other major oil-producing countries agreed to reduce their oil production in 2017 in an attempt to decrease the global supply of oil and in turn increase the price of oil.  An extension was signed in advance of the previous deal ending in this coming March.  The original cut in oil production was in response to falling oil prices.  After declining for the previous few years, 2017 saw rising oil prices worldwide, due in large part to the agreement limiting oil that OPEC and other countries enacted last year.  West Texas Intermediate saw crude oil prices rise from $43.33 per barrel in 2016 to $50.56 per barrel in 2017. 

Oil is a major source of revenue for many countries worldwide.  More specifically Russia and the countries in OPEC rely heavily on oil for revenue.  Many of the major oil producing companies in these countries are owned by the government.  Declining oil revenue means big problems not just for private companies but also for most of the national governments involved in this agreement.

A major reason behind the falling price of crude oil is the rising production from US oil producers.  Some analysts predict the United States to surpass its all-time high oil production numbers during 2018; however, other experts see disappointing production from US-based oil companies.  Many oil giants are nervously waiting to see how US oil companies will handle 2018.  Coupled with decreased American dependence on imported oil is an increase in America exporting oil.  America lifted what was essentially a 40-year long ban on exporting crude oil at the end of 2015.  In 2017 the US oil exports reached 1 million barrels per day on several occasions. 

It is difficult to predict what 2018 holds for oil companies.  No one can truly predict whether the price will rise or fall and what companies will see increased revenue.