Brent crude oil prices have recovered strongly (+166%) from a low of ~US$30/bbl in January 2016 to current price levels of US$77/bbl. GoldmanSachs is bullish on the commodity, and in a recent research note, forecasts that higher oil prices are here to stay. Against this encouraging backdrop of stable, higher oil prices, Goldman Sachs advised investors to pour into US and Canadian oil plays. We agree the outlook for oil prices is looking attractive –particularly from a supply perspective. While OPEC recently agreed at its latest meeting in Vienna to increase world oil production by 1% (the equivalent of 1 million barrels per day) from July 2018, the increase is smaller than some market commentators expected. In addition, the threat of sanctions against Iran could curb global supplies by up to 1.3Mbpd from this key oil producer. The socioeconomic problems at Venezuela, another important global oil producer, are ongoing and unlikely to be resolved in the short-term. On the other hand, the US shale oil industry - which accounted for ~80% of total global output grow thin 2017/2018 – falls outside OPEC’s sphere of influence and diminishes OPEC’s ability to “bully” the market to its will. The biggest near-term demand negative, we believe, is the potential for an escalation in the US-China trade war.

The varied supply/demand factors make up a conducive environment for speculation in the world’s largest screen-traded commodity; speculation by itself could lead to sharp fluctuations in the oil price.

Looking at ASX-listed energy plays,the most upside is in the smaller developers/explorers. FAR Ltd’s (ASX:FAR)IRESS consensus target price of 17cps offers some 55% upside potential; KaroonGas’s (ASX:KAR) IRESS consensus target price of A$1.61 offers some 49% upside potential The larger established plays Woodside Petroleum, Origin Energy,Santos and Oil Search appear fully valued relative to their IRESS consensustarget prices. The big question is if the market has still to factor in a higher long-term oil price?