The combination of bullish indicators that boosted oil prices last month are unlikely to last, and the price of oil in the third quarter is expected to drop from current levels, Barclays said in a recent research note.
"Prices have moved higher, due to a perfect combination of a favorable macro environment, a seasonal uptick in consumption, continued inventory drawdowns, and geopolitical unrest," according to Barclays' note, as quoted by CNBC.
However, the bank noted that "Certain factors that supported prices in July are unlikely to last, and we expect a downward correction during this quarter."
On the last day of July this past Monday, WTI prices closed above US$50 for the first time in more than two months. The price of WTI gained 9 percent in July, the best month since April 2016.
But as we are moving into the second month of the third quarter, Barclays is not optimistic that prices would hold.
"Fundamentals remain shaky this quarter, therefore any rally that occurs before more substantive inventory draws would be short-lived," the bank reckons.
At 9:45am ET on Friday, WTI Crude was trading at US$49.03, and Brent Crude was trading at US$51.09.
Although Barclays predicts that oil prices face a downward correction in Q3, they expect an upswing as we move into Q4, mostly due to inventory drawdowns. Related: Did The Arab Spring Disarm OPEC?
"Inventory drawdowns, Venezuela, and the Asian macro backdrop will likely play a more prominent role in the remainder of the year," the bank said, adding that it sees the price of Brent rising to around US$54 per barrel in the fourth quarter this year.
In terms of geopolitical risks that could lift the price of oil, Barclays has recently estimated that if the U.S. were to impose oil sanctions on Venezuela-a possibility not completely ruled out yet-oil prices could rise by as much as US$7 per barrel.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More