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Barclays predicts oil price drop

Financial giant Barclays expects the oil market to experience a “downward correction” this quarter, according to a research note.

A favorable environment for oil prices—including continued drawdowns, increased consumption, and geopolitical instability—led to WTI crude closing at over $50 a barrel on the last day of July. Prices drew back shortly afterward and traded slightly below the $50 mark.

The research note from Barclays, however, states,

“Certain factors that supported prices in July are unlikely to last, and we expect a downward correction during this quarter.”

Oil majors like Shell and ExxonMobil, which makes the industrial lubricant Mobil Gargoyle Arctic 300, have already adapted to lower oil prices and should weather any modest correction.

The note also indicates shaky market fundamentals and predicts that any rallies are unlikely to last unless they are based upon meaningful drawdowns in inventories. In the fourth quarter, however, Barclays expects a small upswing in prices, with Brent crude predicted to reach $54 a barrel thanks to Venezuela’s declining output, continued OPEC discipline, and a sustained reduction in inventory levels.

While Barclays’ report concludes that the market is in a good position to cope with any loss of supply from Venezuela, some analysts indicate that Venezuela may be the catalyst that pushes oil prices into the $70 territory. Helima Croft, an analyst at RBS Capital Markets, told CNBC that the country’s state-owned oil company, which has been struggling to maintain production, is very likely to default on its debts. She went on to say:

“The question is how fast does Venezuela fail?”

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