Why oil prices have fallen

Geopolitical tensions have weighed on the price of oil, but the market looks well supplied.

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.

Recommended

Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Why investors should consider adding Glencore to their portfolios
Share tips

Why investors should consider adding Glencore to their portfolios

Commodities giant Glencore is well placed to capitalise on rising commodity prices and supply chain disruption, says Rupert Hargreaves. Here’s why you…
13 May 2022
How to invest in the multi-decade boom in industrial metals
Industrial metals

How to invest in the multi-decade boom in industrial metals

The price of key industrial metals has already begun to rise. The renewable energy transition will take them higher, says David Stevenson. Here's how …
6 May 2022
Should you buy BP shares? The oil giant looks cheap, but approach with caution
Energy stocks

Should you buy BP shares? The oil giant looks cheap, but approach with caution

With the oil price spiking, BP shares look cheap on a price/earnings ratio of just over seven. But do they deserve a place in your portfolio?
5 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022