Crude could dip to $30 in Q2: Barclays

NEW YORK

Crude prices could fall to $30 a barrel in the next few months, Barclays warned Monday.

The British banking and financial services giant said in its annual report that commodity prices have increased during the first quarter but investors could take short-term positions to liquidate assets for profits.

But prices are not expected to continue to rise in the second quarter of 2016 since "they are not supported by any underlying improvement in demand fundamentals," and investors could prefer to sell when prices are high.

"Commodities are among the few assets that have generated a positive return in Q1 and, as quarter-end approaches, that may make investors keener than they would usually be to close out long positions and lock in profits," Barclays said.

The bank stressed that if investors take short-term positions and sell, there is "potential for a 20-25 percent move down in prices," and emphasized "the price of oil could fall back to the low $30s."

Oil prices recently climbed above $40 and reached their highest level of the year after the U.S. Federal Reserve kept interest rates unchanged.

While the effects of the decision begin to wean, there has been hawkish statements from some Fed members that a rate hike could come next month.

"The risk of a surprise rate hike in April, following the 26-27 April FOMC meeting, is present," Barclays said of the Fed’s Federal Open Market Committee.

It added that an "unexpected tightening in monetary policy would likely depress commodity prices."

A rate hike could increase the value of the dollar against other currencies and weaken the purchasing power of oil importing countries -- negatively effecting their demand and overall demand worldwide, driving crude prices lower.

In fact, even a rate hike possibility has its effects on the dollar and oil prices.

"The dollar rallied last week after hawkish statements from FOMC members, which sent commodities lower," Barclays noted.

Another major reason for rising oil prices in the first quarter was increased crude imports by China.

The country’s oil imports increased strongly in February due to high refinery runs and lower domestic production, according to Barclay’s. "China imported 8.04 million barrels per day (mbpd) of crude oil in February. This is the highest monthly import pace on record," it said.

Saudi Arabia retained its position as the biggest crude supplier to China, with 17.2 percent market share in February -- the highest since June 2015.

The Kingdom was followed by Angola and Russia, having 15 percent and 12.9 percent share, respectively, within total amount of Chinese crude imports in February, according to Barclays' report.