Oil prices fell alongside the stock market during the late January to early February selloff as part of a global risk-off trade. Oil prices have also recovered alongside the S&P 500 since the Feb. 9 low.

We remain sanguine about crude-oil prices over the short to intermediate term. Backwardation in the Brent futures curve continues to point toward a tight supply-demand balance. Twelve-month Brent futures trade at a discount of $3.76 per barrel to the front-month contract, just off the January high of $4.56 per barrel.

That said, we don’t expect oil prices to rally to $70 or $80 per barrel. Such a move would be self-defeating, as the surge in shale production would overwhelm demand.

At the same time, we don’t expect a repeat performance of last year’s big selloff back into the $40s per barrel. OPEC and Russia remain disciplined on their supply agreement, and tight labor and services markets in the North American oil patch are raising costs for shale producers. At the same time, investors are demanding greater capital discipline, which means producers require higher prices to incentivize stepped-up activity.

Recent disruptions in Libya and plummeting Venezuelan production—down 300,000 barrels per day since September alone—represent additional potential upside catalysts for oil prices this year. We expect WTI to average about $60 per barrel this year.

Although the upside potential in oil prices appears limited, energy equities offer a better risk-reward proposition. The stocks on our Focus List remain our favorite bets and have held up well in a challenging tape and an earnings season filled with land mines.

At the outset of each year, the Energy & Income Advisor team reviews its big-picture calls from the previous 12 months and digests the lessons from our successes and failures. This self-reflection on what went wrong and what went right helps us to hone our investment strategy.

We also highlight our outlook for the coming year to set a basic framework that informs our positioning and helps to remove some of the emotion from the investment process. As always, none of our forecasts are set in stone; rather, these views necessarily will evolve as economic and market conditions change over time. In a dynamic market, what’s right at the outset of the year might no longer hold at the midway point.

Recent issues of Energy & Income Advisor have highlighted our outlook for energy stocks, master limited partnerships (MLP), and our International Portfolio. This time around, we’ll delve into four macro topics: the economy, the US equity market, crude-oil prices and natural-gas prices.