After emerging as a top performer in 2016, the energy sector had a relatively turbulent ride in 2017. Till September, oil prices remained volatile and were seen hovering within the $45-$55 per barrel range. However, things have started to look up for this space over the past few months with prices consistently trading above the $60 per barrel mark.
A number of factors have propelled this positivity. These include the OPEC-led production cut extension, lower inventory overhang and rising demand. A strong rally in oil prices makes investing in mutual funds from the energy sector a prudent choice.
Oil Prices Environment Upbeat
Crude supply has been normalizing, which has pushed the price of WTI and Brent to new three-year highs. The improving commodity pricing environment looks somewhat sustainable on the back of tailwinds like OPEC production cuts which are expected to continue till 2018-end along with improved demand outlook.
On Nov 30, 2017, OPEC members met non-OPEC players to decide on an extension of the crude production cut accord, first signed in late 2016. OPEC and fellow exporters also announced plans to remain open to extend their production-cut agreement beyond March 2018 — an imperative step to combat the global crude glut. Some cartel members including less compliant nations like Iraq have also signaled another round of supply cut.
Adding to the positive momentum, energy bodies OPEC and IEA recently raised global oil demand forecasts for 2018, helping to tighten the market significantly. The booming crude oil and gas exports this year reflect substantial demand for U.S. oil. All these factors point toward the growing stability and growth prospects for the energy sector in 2018.