Crude Oil

Prices: Crude oil prices traded above $50 per barrel (b) through most of December, reaching their highest levels since mid-2015. The Brent and West Texas Intermediate (WTI) front-month futures prices closed at $56.89/b and $53.76/b, respectively, on January 5, increases of $2.95/b and $2.70/b, respectively, since December 1 (Figure 1). Brent and WTI average spot prices in December were $8.56/b and $6.26/b higher, respectively, compared with November averages.

On November 30, members of the Organization of the Petroleum Exporting Countries (OPEC) agreed to reduce oil production in the first half of 2017. This agreement was a contributor to rising oil prices in early December. On December 10, 11 non-OPEC countries, including Russia, also agreed to reduce output in early 2017 as part of an effort with OPEC countries to accelerate rebalancing in the oil market.

Some countries within the agreements have confirmed with customers that they will reduce oil deliveries in the coming months, providing more credibility to the stated production targets. These confirmations likely provided additional support for higher oil prices. However, some countries not subject to the terms of the agreement could increase production in the coming months, which is expected to result in an increase in global oil supplies and could delay consistent global inventory withdrawals until the second half of 2018. Uncertainty in the production response from Libya, Nigeria, and the United States in the coming months presents some of the largest risks to the timeline of oil market rebalancing.