With WTI crude oil now trading above $60 a barrel, some are predicting we’ll hit as high as $80 in 2018. Financial Sense Newshour recently spoke with Robert Rapier at R-Squared Energy to discuss his outlook for oil this year, why he thinks the current rally will continue but have a hard time going much higher than $80 with massive production out of the US, most notably from the Permian Basin.

Sustainable Rally to Continue

The rally was long overdue, Rapier noted, as global inventories, which were at record highs and were mostly responsible for the price plunge in 2014 have been coming down rapidly.

Despite hype about electrical vehicles and increases in fuel economy impacting demand, oil production hasn’t been keeping up, especially with OPEC’s production cuts, Rapier stated.

With OPEC set to reduce production, that impact may be a big story. Demand is also a consideration, however, and Rapier expects global demand growth to continue.

US Shale Production 

At the present trajectory, US oil production will exceed 10 million barrels this year, which is a rate we haven’t seen since the early 1970s, Rapier noted. In fact, US production may actually exceed Saudi Arabia’s output.

Without growing global demand, oil prices wouldn’t have climbed out of the $40s, Rapier stated. Global production has increased for the last three years, in line with the increase in demand. If that hadn’t happened, inventories would still be very high, and we wouldn’t see current prices.

“A lot of people think prices will come down because of US shale production,” he said. “I was out in the Permian basin last week. They are very, very busy. … Nevertheless, I’m certain that if demand increases by the amount that the IEA is projecting, the US alone certainly will not be able to meet that increased demand.”

Venezuelan Oil Industry in Shambles

On paper, Venezuela has the largest oil reserves in the world. It has far more reserves than the US, and yet we produce more than 6 times the amount.