HOUSTON—This will be a volatile year for oil and natural gas prices, an analyst told a recent industry forum.

“It’s going to be rough,” Nicole Leonard, senior energy analystin commodity consulting for S&P Global Platts, told executives at S&P Global’s recent Midstream Energy and Oil and Gas Breakfast Forum. “2017 is going to be volatile and prices are going to be all over the place because prices this year probably won’t be driven by fundamentals. It will be driven by people in the market trying to bet on OPEC and the U.S.”

Leonard acknowledged that a sense of optimism was emerging among industry players as the price of West Texas Intermediate (WTI) crude has lingered around $55 per barrel (bbl). She just doesn’t agree.

Two issues are creating uncertainty in the short term: whether OPEC members can adhere to their collective 1.2 MMbbl/d production cut commitments, and a global oversupply of both crude oil and refined products.

Long-term, supply and demand fundamentals dictate that oil prices will increase, Leonard said. But again, she pushed back against conventional wisdom that U.S. producers will simply throttle up to fill OPEC’s production cut space.

“Spoiler alert: I don’t think the U.S. is going to grow as fast as everybody thinks it will,” she said.

Leonard’s short-term concerns revolve around OPEC. She noted that while Saudi Arabia, Kuwait, Angola and Algeria were reducing production beyond their stated commitments, Libya and Nigeria have grown production and pose a risk to the cartel’s chances of success.

There are also new projects coming online this year in non-OPEC countries like the Congo, Norway and Brazil. OPEC price strategy or not, these projects are expensive and people want to start making money on them.

Russia committed to production cuts along with OPEC, but Leonard doubts those cuts will materialize because Russia also has new projects set to come online. Canada, too, has 300 Mbbl/d of new capacity on the verge of coming online.

S&P Global’s price forecast shows WTI and Brent breaking through $70/bbl in 2019 and staying in the $70/bbl-$75/bbl range through 2021, Leonard said. That forecast is built upon a relatively conservative demand forecast of about 900 Mbbl/d year-over-year growth for the next five years.

Refining margins in 2014 were about $7/bbl, with crude prices at about $90/bbl. In 2016, with WTI plunging to the $20s at one point, margins were down to $3.80/bbl.

“Even though the feedstock is so low in price, the product that you’re making isn’t as valuable,” Leonard said. “Before the market can really balance, before OPEC’s cut can fix the market, we have to run through the refined product inventories, then the crude inventories. To me that poses some risk as to whether that OPEC cut can really balance and make prices stable again.”

But if OPEC production cuts do stick, that is an opportunity for U.S. producers, in theory, to ramp up and fill that 1.2 MMbbl/d market slot. Leonard sees that, but cites breakeven prices for oil in the top plays at $35/bbl-$40/bbl.

“Well, we’ve been above $35 a barrel for most of this downturn except for maybe a month last year,” she said. “So why isn’t production ramping up? Do these breakevens even matter?”

With the rig count up sharply over 2016, U.S. oil production will grow, but Leonard emphasized that growth will not equal the magnitude of production prior to the start of the downcycle in late 2014 because so many E&Ps are saddled with debt.

“Every quarter, producers are taking on more debt in common stock than they are paying back,” she said. “This debt just keeps on piling on top and on top.”

While OPEC-induced uncertainty makes 2017 anything but a sure bet, expected global demand growth brightens the long-term outlook.

“In terms of demand, in the short term we need to see more so we can run through inventories,” Leonard said. “But in the long term, peak demand is not as likely as a shift in the demand for refined products.”

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.