Barclays: Oil prices continue to be supported in the near term

Oil price risk remains to upside in the short term and natural gas prices are recovering but with capped upside, Barclays said in its most recent Energy Market Outlook, released Aug. 16.

Oil price risk remains to upside in the short term and natural gas prices are recovering but with capped upside, Barclays said in its most recent Energy Market Outlook, released Aug. 16.

Factors for softness in crude markets include record-high net speculative length, tepid demand growth due to refinery maintenance in September and October, incremental supplies from US shale oil, better Canadian supply, and even the possibility of some new production from Iraq, Barclays analysts said.

While facing countervailing pressures, oil prices are unlikely to be weakened due to high supply-side losses, they said. Strong upward pressure on prices, meanwhile, is being supplied by intensifying conflict in the Middle East, exacerbated supply disruptions from members of the Organization of Petroleum Exporting Countries, upstream field maintenance, and prestocking requirements from new refinery capacity, Barclays analysts said.

“Overall, we see oil price risk skewed to the upside,” Barclays said.

US natural gas prices are moderately recovering, with the prompt contract currently trading at about $3.40/MMbtu. The recovery was attributed to storage increase and favorable weather expectations, including stirring tropics. However, Barclays believes the upside remains capped by continued gas production growth.

Contact Conglin Xu at conglinx@ogjonline.com.

More in Economics & Markets