Our oil price predictions for 2017 call for WTI crude oil prices to climb to $62 a barrel and Brent crude to rise up to $65 a barrel by April 2017.
According to Money Morning Global Energy Strategist Dr. Kent Moors, as long as the OPEC agreement from November stays in place, the price floor above $50 a barrel will remain. And Moors expects WTI prices to top out at $62 a barrel because at that price oil producers will flood the market with supply.
That's why Moors maintains his crude oil price predictions for 2017 of $62 for WTI and $65 for Brent by April 2017.
And Moors' oil price predictions have a proven track record.
In August 2016, Moors predicted WTI oil prices would end the year between $52 and $54 a barrel. WTI prices ended the year at $52.79 a barrel. Now we're giving you his most recent forecast.
But while supply and demand will always be important for the price of oil, these five major geopolitical issues are catalysts in our oil price forecast that can shake up the price of oil in 2017. And oil futures traders will be keeping a close eye on these catalysts.
That's why we're not only giving you our top line oil price prediction, but our complete breakdown on what's moving oil prices this year.
These are the five geopolitical forces affecting oil prices this year...
The Federal Reserve Is Going to Hike Rates in 2017
The U.S. Federal Reserve is expected to hike interest rates three times in 2017.
And during the Fed's December meeting, FOMC members indicated three more rate hikes were likely to come in 2017. Currently, the CME FedWatch tool shows a probability of 68.6% for a rate hike in March.
Because oil trades in American dollars, the Fed's interest rate decisions will affect the price of oil. And higher interest rates strengthen the dollar, which boosts the price of oil.
The WTI crude oil price jumped 3% the day after the Fed announced its latest rate hike on Dec. 14.
Demand for Oil Is Surging Across the World
The World Bank expects demand for crude oil to rise by 1.3% in 2017. That will lead to an average demand of 96.3 million barrels a day.
The biggest increase in demand will come from the developing world. Growing populations and economic development in India and China will spur more demand for oil. The demand for oil from non-OECD countries will climb 2.3% in 2017.
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But while demand is expected to grow in 2017, it's growing at a slower rate than in previous years.
The International Energy Agency reports demand will increase by 1.3 million barrels a day in 2017. But this is less than the last two years. Crude oil demand increased by 1.4 million barrels a day in 2016 and by 1.9 million in 2015.
The European Union Is on the Brink of Collapse
After "Brexit," when Britain voted to leave the EU in June 2016, nationalist movements in other EU countries have been emboldened.
While Prime Minister Theresa May will invoke Article 50 to leave the EU in March, other European countries are holding major elections this spring.
Dutch elections in March could end in victory for the anti-EU populist Geert Wilders.
Italy may also hold a parliamentary election this spring to replace Matteo Renzi, the former prime minister who resigned in December.
If Beppe Grillio - the leader of Italy's Five Star Movement - wins, he could call a referendum on Italy's membership in the EU.
But the biggest blow to the economic union will be a French exit.
The second round of French elections will end in May. Marine Le Pen, a leading "Eurosceptic," is expected to easily make it to the second round of voting in May. If Le Pen wins, she is likely to initiate a "Frexit."
The status of the EU impacts our oil price predictions because it leads to uncertainty and greater investment risk. Higher risk typically leads to more bearish investors.
WTI crude prices fell 6.4% the day after the Brexit vote. Frexit could be even bigger.
And the next two issues will have the most impact on oil prices this year...
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President Trump Is Making the U.S. Energy Independent
President Trump campaigned on a pledge to make "America energy independent." To do this, he's proposed eliminating regulations on domestic oil and gas production.
He's been consistent on this issue since being sworn in as president. President Trump signed an executive order authorizing the completion of the Keystone XL and Dakota Access pipelines. And one of the first bills he's signed into law rolled back a restriction requiring oil companies to disclose payments made to foreign governments.
President Trump also nominated Oklahoma Attorney General Scott Pruitt to head the Environmental Protection Agency. As attorney general, Pruitt got attention for suing the EPA over its regulation of oil and gas companies in his state. As the chief administrator of the EPA, he could weaken the organization's regulations from the inside.
And by making it easier and cheaper for American oil companies to produce oil, they can produce more. That's why Moors doesn't expect oil prices to rise over $62 a barrel.
OPEC Must Hold Its Agreement Together
OPEC hasn't agreed to a production cut since 2008. But record low oil prices in 2016 forced the cartel to take action.
You see, Saudi Arabia tried to put American shale oil producers out of business in 2014. During a November 2014 OPEC meeting, the Saudis pushed aside a cap on oil production and began producing more oil to push prices down.
The idea was to lower oil prices below the breakeven price for shale producers, putting them out of business and allowing Saudi Arabia, and OPEC, to reclaim market share from the Americans.
But the plan failed. American oil producers simply innovated.
Between 2014 and 2016, the breakeven cost for shale oil from the Permian Basin more than halved. Shale oil is now profitable just below $40 a barrel.
Now, OPEC is desperate to raise the price of oil again by cutting production and limiting supply. And so far it's working as cartel members are complying with the agreement.
But the agreement is only in place for six months before the cartel has to decide to renew it, end it, or make a new deal.
That could happen in May, at the next formal OPEC meeting and the first since the deal went into effect. Oil investors will need to pay close attention to the meeting and whether the cartel will extend the current agreement, or even cut production further.
Now that you know the major issues affecting oil prices in 2017, we want you to make money from rising oil prices. That's why we've put together a list of oil stocks we expect to soar in 2017. Here's our list of the top oil stocks to buy...