Crude oil prices will remain supported for the rest of 2014 on geo-political tensions while it will remain elevated with an average price of $108 per barrel in 2015, according to Barclays.However, prices would be slightly lower than in 2014. Amid acute geopolitical tension, upside demand potential from India, new Middle East refining capacity, stabilised US condensate exports, strategic stockbuilding,higher smuggled crude volumes and crude quality changes will all impact physical and perceived market balances in the remainder of 2014 and in 2015.

Barclays expects Brent crude ol prices to fall slightly from an average of $109 per barrel in 2014 to $108 in 2015. Compared to 2014, demand growth is forecast slightly weaker at 1.3 mb/day in 2015, non-OPEC supply growth slightly weaker at 1.6 mb/day.

"For the balance of the year, we have made a (-0.4 mb/d) revision to the call on OPEC due to a combination of higher non-OPEC supplies and weaker economic growth prospects in China and Russia. Baseline revisions raise the call on OPEC upwards by 0.9 mb/d to 29.7 mb/d in H2 14; however, at 30.0 mb/d
in June, OPEC crude production is already exceeding its call," Barclays said.

As the market risk premium remains elevated, key OPEC producers’ willingness to manage production levels will keep the impact of fundamental weakness in check. Upside risks on both sides of the supply/demand ledger will support prices.

1. Chinese strategic stockbuilding, which added around 800 kb/d during 2Q14 based on IEA’s calculations, is set to continue. Filling 100 mb of Phase 2 sites over the course of H2 14 would imply additional imports of more than 500 kb/d.

2. The duration of Buzzard and the Forties Pipeline System maintenance is likely to be extended due to aging infrastructure and will present upside risk to prices in September.

Most importantly, known geopolitical hotspots are likely to worsen before getting better. When violence inevitably turns towards energy infrastructure, backup diesel-fired generators are the backstop, raising oil demand. The escalation of military conflict between Israel and Gaza as well as between Russia and Ukraine is likely to continue through 2014. These conflicts, in concert with the rise of the Islamic State in Syria and Iraq, threaten the stability of the key Persian Gulf and North African producing states. Even if the conflict does not add to the 3 mb/d of unplanned outages a higher risk profile is associated with their existing production and increases the reliance on a thin margin of spare capacity in Saudi Arabia.
Source: Barclays