Why oil prices have fallen

In June, the price of Brent crude oil hit $115 a barrel, an eight-month high. But the spike didn’t last long. This week, oil was down at an eight-month low, below $104.

The Islamic State insurgency in Iraq had fuelled fears of major supply disruptions, but the jihadists’ stronghold is largely confined to the north of Iraq, and Iraqi exports come mostly from the south.

Meanwhile, the start of air strikes last week should weaken the Islamic State’s position, further reducing the odds of supply disruptions.

Elsewhere, reckons Barclays, any disruptions to Russian supplies due to sanctions are likely to be eclipsed by sliding demand in Russia as the economy weakens.

So, while geopolitical jitters will keep markets on their toes, so far a major disruption to oil supplies seems unlikely.

And as far as the fundamentals are concerned, the market looks well supplied with oil. Libyan production has rebounded in recent weeks and US stockpiles recently hit a record. Demand growth is subdued, with Europe’s economies struggling and Chinese growth ebbing in recent years.

The upshot, according to Barclays, is that prices will stay in the trading range of recent years, averaging $108 a barrel in 2015 and $109 this year.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Heading higher?

Or are house prices set to fall?

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

'Would you rather upset God, or have Him just ignore you?'

In the first of three interviews with Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


24 November 1972: the 'DB Cooper' hijacking

Today in 1972, a man calling himself Dan Cooper parachuted from a hijacked Northwest Airlines Boeing 727 with $200,000 in cash. He has never been found.