After roaring in 2016, the energy sector seems to have stalled so far this year.
But a top strategist for UBS Wealth Management Research thinks within the next three to four months, oil prices may increase by as much as about $10 a barrel.
"I think some investors are content to lock in 2016 gains but that is not what we're recommending," said Nicole Decker, energy sector analyst for energy, in a telephone interview last week from her office in New York City.
"We believe the oil market will continue to tighten in 2017, providing further support for oil prices and also support for energy equities."
Back in November, oil prices rallied after the Organization of Petroleum Exporting Countries, commonly called OPEC, agreed to cut production for the first time in eight years. But since then, prices have flattened.
The price of West Texas Intermediate crude _ the benchmark price for most oil produced in the U.S. _ jumped in the wake of OPEC's announcement but since then the price has stalled in the low-to-mid $50 a barrel range. On Tuesday, U.S. crude lost 6 cents to close at $53.14 a barrel in New York.
Many analysts and U.S. oil producers were skeptical that OPEC members would stick to their commitments to curtail production. In the past, it was not unusual for some of the cartel's members to cheat. But a series of reports have indicated OPEC has largely adhered to its targets, with Saudi Arabia taking the largest cuts.
Cutting production leads to reducing supply, which helps raise prices. And global oil prices swooned from over $100 a barrel in the summer of 2014 to $26 in February of 2016.
Pointing to the OPEC reductions, Decker said, "Near term, we see the price of West Texas Intermediate rising potentially as high as $63 a barrel."
Russia is not a member of OPEC but said last November it would join in the production cut. There has been some question whether the Russians were sincere but on Monday the country's energy minister said that by late April the country will achieve its agreed-to cut of 300,000 barrels per day.
But at the same time, there are other indications that supplies are heading in the opposite direction.
On Tuesday, the U.S. Energy Information Administration, or EIA, came out with its Short-Term Energy Outlook and anticipated domestic oil output growing, led by increased drilling in the Permian shale region of West Texas and eastern New Mexico.
EIA forecasts domestic oil prices to average $54 a barrel for this year and $56 a barrel in 2018.
Decker said UBS doesn't expect to see significant growth in U.S. production in the first half of this year but does anticipate production to rise in the second half of the year.
"It's going to be a tale of two halves in 2017," Decker said. "We don't expect a wall of new supply but we do expect U.S. production to rise" but not enough to "cause the market to dip back into an oversupply situation."
As a result, Decker said prices could return to the mid-$50-a-barrel range in the second half of the year after hitting the aforementioned $63 potential high.
But other energy observers have worried that any OPEC cuts would be canceled out by rises in production by U.S. producers.
"I remind them that global demand is rising," Decker said. "We have conservatively estimated 1.2 million barrels a day of global demand growth."
Though U.S. oil producers have been hurt by the low-price environment, many have proven surprisingly resilient and have been able to survive and even make money with prices in the $50-a-barrel range.
Decker sees opportunities for investors predominantly in the exploration and production and the oil services sub-sectors.
"The trends have pointed to fundamental improvement and ultimate rebalancing" in the oil market, Decker said. "I don't think the market is appreciating the potential magnitude of the inventory draws that we might see in the coming weeks ... I think investors who have kind of rotated away from energy may revisit."
Speaking of revisiting, OPEC meets in late May, when its members are slated to discuss whether to continue the cartel's production curtailment or not.
At an energy conference in Houston on Tuesday, Saudi Energy Minister Khalid Al-Falih said, "OPEC obviously will not indefinitely reduce its production and market share to make room" for U.S. producers who ramp up production too aggressively.
"So we need to find that balance and grow in line with the market," Falih told CNBC.
