INVESTORS SHOULD NOT DISCOUNT THE CAUTION SIGNS.

multiple, and the U.S. group is at about 5.6x. That represents the largest discount to the overall market in the last 10 years.

“Investor exposure to the North American oil and gas group is at multi-decade lows,” Ollenberger said. “In our opinion, these valuation levels are attractive relative to historical trading ranges and the overall market.” likely to grow by more than demand in 2018.

“For now, the upward momentum that drove the price of Brent crude oil to US$70 per barrel has stalled; partly due to investors taking profits, but also as part of the corrections we have seen recently in many markets,” the IEA said. “Most importantly, the underlying oil market fundamentals in the early part of 2018 look less supportive for prices.”

While many attribute the recent oil price pullback to broader market turbulence, RBC Capital Markets analyst Michael Tran believes there is more going on.

“Oil prices needed a breather and investors shouldnotdiscountthecaution signs that have been emerging,” he said in a report. “In our view, the market has been overly focused on the race toward rebalance without realizing that transient pockets of oversupply have been emerging in the physical market.”

It has become clear in the past year that the market’s ability to absorb oil is heavily dependent on the pace of U.S. production. This factor took a back seat during the oil price rally in recent months, but with production growth of nearly 850,000 barrels per day since late in the summer, U.S. oil producers have demonstrated how aggressive they can be in a rising price environment.

“The market simply got too bullish without pausing to consider the response of U.S. shale,” Tran said, noting that domestic producers continue to see shale flourishing with oil in the midUS$50 range.

As a result, investors should expect these producers to stick with the “drill baby drill” approach, irrespective of volatility in prices, as they continue to lock in price protection through hedging programs.