Barclays says oil prices are likely to recover before market expectations

Jessica Morris
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Oil prices are currently hovering around $50 per barrel (Source: Getty)

Barclays analysts have come out against the "lower for longer" talk regarding the future direction of oil prices.

In a report, they argue current oil prices aren’t high enough to encourage companies to keep producing sufficient quantities of the black stuff in the medium term. And this will make it harder to meet demand for oil in the future.

“The lower prices go today, the higher they will likely go in the coming years,” it warned.

It said that the global benchmark, Brent crude, is most likely to rise to $85 per barrel by 2020, significantly more than the $65 per barrel which the market is currently pointing to.

Read more: IEA says oil demand falling lower than expected

The black stuff peaked at about $106 per barrel in June 2014, and is currently hovering around $50 per barrel.

“We model several assumptions about OPEC production growth and a more elastic supply response for US tight oil,” it said.

“But no matter whether we assume higher supply or lower demand, higher prices than the market currently believes are required to offset existing field declines.”

Barclays highlights three “wildcards” which will affect the oil market after 2016: a slowing China’s impact on oil demand, the return of Iranian oil to the market and the decline rate of older fields. It said that the latter will “be the dominant factor driving prices.”

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