1. Iran and rising geopolitical risks Iran is the third-largest oil producer in Opec and its output of 3.8m barrels a day represents more than 4 per cent of global oil supply so the political protests in the country over the past week have undoubtedly caught the market’s attention. While the protests have so far had no impact on crude oil output and are broadly seen as unlikely to directly unless they result in greater political upheaval in the country, traders are still watching closely for any fallout. Analysts at JBC Energy say the biggest short-term risk is if the Iranian government’s response to the protests spurs further sanctions from the US, with President Donald Trump said to be unlikely to certify the landmark nuclear deal with Iran later this month. “Beyond the recent focus on street protests, the potential reinstatement of US sanctions targeting the Iranian oil industry remains an issue,” JBC analysts said. Tensions between Iran and Saudi Arabia, Opec’s largest producer, are also running high, particularly over the war in Yemen. Two ballistic missiles have been fired towards the Saudi capital in recent months, which Riyadh has accused Iran of supplying to Houthi militias. Oil supplies from Iraqi Kurdistan have also dropped since October when Baghdad reclaimed oilfields in disputed territory from the semi-autonomous region. Venezuela, another Opec member, has seen its output fall to the lowest in almost 30 years due to an escalating economic crisis, with some analysts seeing its remaining 1.9m b/d of production as the biggest potential supply risk in 2018.

2. US shale and non-Opec supply The great hope of traders betting against the rally is that US shale and other non-Opec supplies will grow faster than consumption this year. The US Energy Information Administration is already forecasting US shale output to increase by 780,000 b/d in 2018, more than double the 380,000 b/d it expanded by last year. This year’s forecast is likely to be revised higher with crude above $60 a barrel. Large-scale conventional projects commissioned before the crash are also expected to come on stream in Brazil and Canada this year, boosting total supply from outside Opec by about 1.6m b/d in 2018, according to the International Energy Agency. “The inevitable resumption of growth in the US . . . will likely nudge crude stockpiles higher again in 2018,” said Morningstar analyst Joe Gemino. A question mark, however, hangs over how non-Opec supply may fare in later years following massive cuts to capital expenditure since 2014. Can shale grow fast enough alone?

3. Demand and the world economy The strength of demand growth has been the little-told story of the oil price recovery with consumption expanding by almost 5m b/d between the start of 2015 and the end of 2017, compared with annual growth of well below 1m b/d when oil was above $100 a barrel. While part of that resurgent growth has undoubtedly been down to lower prices the pick-up in the global economy is also a major factor, with most forecasters believing the world is now enjoying the strongest period of expansion since the financial crisis. The IMF sees global GDP rising 3.6 per cent this year. “In other words, support for global oil demand and oil demand growth will remain intact,” said analysts at PVM oil brokerage in London.