Are happy days here again for the oil sector?

The jury is still out on that one, but the bleak commodity price environment that changed ways of doing business in the sector is definitely looking better than it did at year-end 2014.

Data from the U.S. Energy Information Administration (EIA) reveal the price for a barrel of West Texas Intermediate (WTI) crude oil was $53 at the end of 2016, which was $16 per barrel higher than it was at year-end 2015. The lingering oversupply of oil, however, was unable to lead to improvement in terms of the average WTI price—which was $43/bbl, $5/bbl less than the 2015 average.

“Despite robust demand for petroleum products, relatively high production and inventory levels provided downward pressure on crude oil prices throughout most of 2016,” the EIA said in its Jan. 3 report. “However, recent agreements to curb production over the next six months within the Organization of Petroleum Exporting Countries (OPEC) and additional pledges by some key non-OPEC producers put upward pressure on prices at the end of 2016 as markets appear to be anticipating tighter balances than previously forecast.”

Some members of OPEC, including top-producer Saudi Arabia, agreed to cut production by 1.2 million barrels per day (MMbbl/d) to 32.5 MMbbl/d. The agreement became effective Jan. 1. Saudi Arabia pledged to reduce output by 486,000 bbl/d. Yet, skepticism remains on whether OPEC’s promise—which excludes Nigeria and Libya—will be fulfilled. Some non-OPEC members, including Russia, also agreed late last year to cut production. These developments came as production and rig counts continued to rise in the U.S. along with oil prices.

WTI was at $53.71/bbl on the morning of Jan. 5 as the market continued to recover.

Despite concern about whether planned production cuts pan out, some in the industry are optimistic that better days are ahead, especially in the U.S. where operators are making plans to increase activity in shale plays.

Based on estimates for its Short-Term Energy Outlook, the EIA pointed out that U.S. crude production in 2016 was more than 500,000 bbl/d less than in 2015.

“The decrease was driven by reductions in Lower 48 onshore production, with an estimated decline in production from 2015 to 2016 of nearly 700,000 [bbl]/d,” the EIA said. “Despite the decline, production of crude oil is forecast to average 8.9 [MMbbl/d] in 2016, the second highest level since 1985.”

The EIA forecasts U.S. crude oil production will average 8.8 MMbbl/d and WTI price to average about $51/bbl in 2017—which would be a great improvement over the 2016 average of $43/bbl.

The latest Dallas Fed Energy Survey, released Dec. 29, said that “respondents were more bullish than last quarter about oil prices one-year ahead.” More than 70% of those surveyed believe oil prices will be higher a year from now.

But no one knows for sure where commodity prices will land.

“The values of futures and options contracts indicate significant uncertainty in the price outlook,” the EIA said in its short-term outlook.

Velda Addison can be reached at