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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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.