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Geopolitical turmoil and security threats in major producing regions are never good for oil market stability, and while global benchmark oil prices have been cruising through an historic range-bound lack of volatility for an extended period, geopolitical headwinds show no sign of abating in the near term according to Barclays’ research.

The bank forecasts 2014 Brent oil prices to average $109 per barrel and anticipates slightly lower prices next year at an average $108/bbl. Their 2014 average WTI price forecast remains at $102/bbl and the analysts slightly increased their 2015 WTI forecast from $100/bbl to $102/bbl. But Opec outages “remain the wildcard.”

“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.” – Barclays Blue Drum, July 30, 2014

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