What's going on?

The International Energy Agency (IEA) highlighted some of the risks to the oil price in a report on Thursday � but also suggested the price would be supported by increased demand for oil in 2017.

What does this mean?

On November 30th, after months of negotiation, OPEC (a group of mainly Arab oil producing states) and some other countries agreed to significantly decrease their collective output. The deal helped propel the oil price from its low below $30/barrel in February to above $50 at the beginning of this year (it more than doubled). However, as the IEA points out, oil producers that are not part of the deal (especially those in the US) will now be motivated by the higher price to increase their production.

Why should I care?

The bigger picture: The energy industry looks like it�s about to get more supportive of the US economy.
The number of oil rigs in operation in the US has increased every month since May � with more rigs added in December than in any month since early 2014! This gels with recent record-high prices for oil-rich land in Texas and surrounding states, including Exxon�s $6 billion purchase of a major oilfield this week. It all points to a big increase in US oil production, which would likely be good for the wider US economy. (tweet this)


For markets: The dynamics affecting the oil price have, arguably, become more complicated this year.
For much of last year, the oil price went up and down based on the perceived likelihood of an OPEC deal (the more likely a deal, the higher the price went). Now that a deal has been made, investors will be watching to see if countries stick to their promised production cuts. But they will also be watching to see how quickly US production picks up (which would be negative for the oil price), and whether the expected improvement in global economic growth raises overall demand for oil (which would be positive for its price).