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A pumpjack works at a well head on an oil and gas installation near Cremona, Alta., Saturday, Oct. 29, 2016.

Jeff McIntosh/THE CANADIAN PRESS

Euphoria that gushed into the oil patch as 2016 drew to a close is sure subsiding quickly.

The Organization of Petroleum Exporting Countries's renewed discipline on production accelerated gains in Canadian energy stocks, as investors grew hopeful – after long last – of an end to the downturn that has wrought so much pain on companies and governments that rely on their success.

Indeed, in the last quarter of the year, the Toronto Stock Exchange's capped energy index rocketed up 20 per cent. Top gainers included such big names as Encana Corp., Suncor Energy Inc. and Imperial Oil Ltd.

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But since then, the index has tailed off by 5 per cent. What gives?

On the surface, pieces seem to be falling into place. The oil cartel, along with Russia and others, appears to be committing to new quotas. Canada is closer than it has been in a very long to time to adding new export pipeline capacity.

Enbridge Inc.'s Line 3 to the U.S. Midwest and Kinder Morgan's Trans Mountain Expansion won federal approval, and U.S. president-elect Donald Trump has pledged to resuscitate TransCanada's Keystone XL pipeline to Gulf Coast refineries.

Meanwhile, cold weather in the first part of the winter has lifted natural gas prices by two-thirds above the price at this time last year. U.S. gas inventories have dropped below both year-ago and five-year average levels.

It's all prompted some Canadian producers to devise plans to pump more cash into exploration and development in 2017.

Now, though, uncertainty around the world and, increasingly, in the United States, is coming back into the picture, and that's put the brakes on stock market gains.

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From the start, there's been nagging unease about cheating within OPEC when it comes to quotas, even with the appointment of monitors.

In addition, there appears to be a deadline on supply reductions. Saudi Arabia's energy minister, Khalid al-Falih, said this week that OPEC producers are unlikely to extend the agreement beyond its initial six months if inventories sink back to the five-year average. Analysts have projected that global supply and demand will come back into balance by midyear or after, though forecasts on this over the past year have proven optimistic.

Here's another bugbear. U.S. benchmark West Texas Intermediate crude has hovered mostly in the low $50s (U.S.) a barrel since the start of December. It's a far cry from the triple-digit prices of 2014, but the futures market presented companies with opportunities to lock in prices that are higher than in the past two years.

That's given shale-oil producers in the United States, especially, the opportunity to increase drilling again. After a big round of equity financings in 2016, it's also provided impetus to go into the market to buy up assets.

On Monday, Houston-based Noble Energy Inc. bought Clayton Williams Energy for $2.7-billion to beef up its position in part of the Permian Basin in Texas and New Mexico. A day later, Exxon Mobil said it is acquiring companies operating in the Permian that are owned by the Bass family of Texas, for $5.6-billion in stock.

The region has been a hotbed of acquisitions in the shale-oil business, one where Calgary-based Encana has bet big.

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Such activity raises the odds that U.S. crude output will rebound quickly, tempering further big gains in oil prices. Since hitting a low point in May, the U.S. rig count has climbed 63 per cent to 659, according to Baker Hughes.

The changing U.S. government is also adding to fears for the Canadian oil patch. House Republicans have proposed a 20-per-cent border-adjustment tax, which may potentially be applied to Canadian oil entering the United States.

U.S. refiners have argued against the measure, saying it would hurt the economy, and Mr. Trump has questioned it as well. But it highlights growing political risk in Canada's biggest trading partner.

The energy sector does look to be firmly on the road back to health. It's proving long and bumpy, though.

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