Related: Big Energy ETFs Continue Their Comebacks

Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. The challenge for energy equities is that some oil market observers see more declines coming for crude. Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices.

“Yet structural improvements mean that their free cash flow position has significantly improved. Likely enabling European producers to abandon dilutive scrip dividends and return to cash, while capital expenditure cuts could also provide a boost, with Goldman tipping Capex budgets to undershoot guidance in 2018 by 10% to 20%,” reports

Citigroup also projects a greater likelihood of persistent shortage of oil than a big jump in supply over the coming quarters. Ed Morse, global head of commodities at the bank, said that a handful of Organization of Petroleum Exporting Countries might already be pumping at maximum capacity already, and due to weak investment in exploration and development, there is a greater risk of a market squeeze once demand picks up, especially from a growing Chinese economy.

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