After a volatile 2017, oil markets turn towards 2018 and the topics that will dominate the next 12 months. Below Stratas Advisors sorted the risks into four main topics that its analysts predict will dominate the 2018 news cycle.

What is OPEC’s timeline?

OPEC’s success at managing markets has exceeded expectations since signing the crude oil production agreement in November 2016, which has been a significant driver of the 2017 price recovery. At its recent meeting last November, OPEC and its non-OPEC allies said that they decided to rollover the current production agreement through the end of 2018. Before the group had even finished its end-of-meeting press session they were being asked what the plan for unwinding the agreement was going to look like and when it would be announced.

Stratas Advisors expects chatter surrounding what the end of the deal will look like to continue, spiking around every meeting of the Joint Compliance Committee since OPEC left the door open for the deal to be re-evaluated and ended early if needed. Additionally, there appears to be some divide amongst members on the appropriate time to begin discussing an end to the deal. Stratas Advisors anticipates that private discussions amongst members are already ongoing, but said the risk is that the moment these discussions become public there is a chance that markets will effectively believe that the deal has ended.

In Stratas’ Reference Case it said the deal should remain officially in effect through the end of the 2018, but with compliance decreasing notably in June as formal discussions on ending the deal become public.

Will demand growth underperform?

Consensus demand expectations suggest 2018 will post gains similar to 2017 on strong economic growth globally. Much of the growth will be centered on the usual suspects in non-OECD Asia, but there will also be sizable growth in major oil exporting economies as the price of crude stabilizes and public spending picks up. Stratas Advisors current reference case demand growth is 1.3 million barrels per day (MMbbl/d).

However, this growth is not guaranteed and there are variables that could derail it. Global economic growth could disappoint, especially if governments take this time of relative prosperity as an opportunity to enact more fiscal reforms—something highly recommended by various global economic think tanks.

There is also the risk that as product prices rise, demand experiences a sharper than expected contraction in those countries which have recently reduced and removed subsidies.

Even if growth is not actually stunted by any external factors next year, fears that it is under-performing could still rattle markets, similar to what was seen in second-quarter 2017. Given the lag inherent in global data releases even perceptions of weak demand could hinder prices, despite being disproven by subsequent data releases.

Will geopolitics drive prices?

Since the price decline began in mid-2014 geopolitical events have had a significantly smaller impact on crude oil prices. In a period of oversupply, markets are more willing to shrug off the risk of geopolitical disruptions on the supply side. However, given that markets will be effectively balanced in 2018 any serious risks to supply will likely have a larger impact on prices. Furthermore, given all of the attention being paid to OPEC negotiations, political disputes between OPEC members could be seen as more likely to put the overall deal at risk now that prices are at levels where some countries might be more comfortable walking away.

Of particular note will be tensions between Iran and Saudi Arabia, and the state of domestic politics in both of those countries. Frustrated with years of economic under-performance and the slow pace of change in the country, Iranians are currently protesting throughout the country. While unlikely to lead to an Arab Spring-style revolution, it could put pressure on Iranian leaders to attempt a regional show of force or make economic concessions that would make it difficult to remain in the supply deal.

In this same vein, other disruptions will likely have a greater price impact such as the pipeline disruptions seen in December in the North Sea and in Libya.

How quickly will supply outside of OPEC grow?

Finally, non-OPEC sources of supply will continue to be a talking point throughout 2018. Currently Stratas Advisors expects the bulk of upcoming non-OPEC, ex-U.S. growth to occur in 2019 and 2020, but Stratas does expect some volumes to come online in 2018. These volumes are primarily small additions to larger projects in Canada, Kazakhstan and Brazil.

On the U.S. side, Stratas expects U.S. crude and NGL to grow approximately 300,000 bbl/d as U.S. shale producers continue to ramp up activity in light of higher prices. Stratas also expects rig counts to continue rising, but do not see an exactly commensurate increase in production for two reasons.

One, Stratas assumes that as crude prices rise, drilling and completion costs will also rise resulting in some firms choosing to drill, but delay well completion. Additionally, rising costs due to rising crude will wear away much of the efficiency gains touted by firms as significant progress in lowering breakevens were due to lowered costs. With costs rising, breakevens will rise, acting as a natural brake on activity.

Second, even with many new wells being drilled, production gains will not be as strong because firms will be pushed into their less productive acreage, lowering initial flow rates and further reducing some of the efficiency gains seen since 2014. However, the pace of U.S. growth does remain a sizable question mark with most current estimates assuming no further breakthroughs in technology, which could dramatically lower costs or speed up drilling timelines.