With a year of historic stock highs officially closed, the week ahead is expected to bring a rare accord to life and, with it, a hint at the year ahead for global oil prices.
It has been one month since all 13 OPEC members agreed to cut oil production. Those cuts are due to begin as soon as next week. Usually, an OPEC agreement to reduce the amount of oil on the world market is greeted with winks and nods. The economic incentives to cheat are normally just too high, so countries will say they're following through with directives to cut production while not actually doing it and pocketing the profits. But even cash-strapped Venezuela has pledged to drop its oil production this time. If the deal holds and the OPEC nations follow through, it will mark the first production cut in eight years.
Oil prices have been rallying since February, when U.S. oil production began falling. A glut of new crude from shale drilling helped drive down oil prices to below $30 a barrel last winter. Still, OPEC wouldn't budge. But now, with prices almost twice what they were a year ago, OPEC hopes less global oil will help prop up already rising prices.
The rally in oil prices in 2016 fueled a rally in energy stocks. Among the 10 major sectors of the Standard & Poor's 500 index, the energy sector had the best performance, rallying about 25 percent.
The new year, though, begins with new uncertainty for energy investors. President Barack Obama has banned offshore oil drilling in certain areas of the Arctic and Atlantic oceans, potentially impacting future domestic supplies of fossil fuels. President-elect Donald Trump's secretary of state nominee, Rex Tillerson, currently leads the largest oil company in the world, Exxon Mobil. American gasoline demand isn't growing.
OPEC's compliance to its own production cuts will be tested in the weeks ahead as will investor patience for energy stocks to repeat their performance.
