Geopolitical tensions will keep oil prices elevated heading into the summer driving season, but the energy market could be on track for a tumble in the second half of the year, according to Barclays' head of commodities research.
Benchmark oil futures hit more than three-year highs last week. Those gains were underpinned by strong demand for petroleum products and a steady drop in global crude stockpiles, but escalating conflicts in the Middle East have boosted the oil market in recent weeks.
Both the Brent and U.S. crude benchmarks posted their biggest weekly gains since July last week in the lead-up to a missile strike on Syria by the United States, France and the UK on Friday in retaliation for a suspected chemical attack .
The Syria conflict, which puts Western powers at odds with Russia and Iran, is not going away any time soon, said Michael Cohen, head of energy commodities research at Barclays. An escalation there could precipitate an escalation in the Saudi-led war in Yemen, in Saudi Arabia's restive eastern provinces or in Iraq during parliamentary elections next month, he said.
Also next month, President Trump must decide whether to restore sanctions on Iran, OPEC's third-biggest oil producer.
"All of this is going to add to headline risk at the very same time that we're gearing up for the driving season," when demand for refined fuels like gasoline increases, Cohen told CNBC's "Squawk Box" on Monday.
"So in our view, we think prices are skewed to the upside this quarter, but we're looking for a correction as we go into the second half of the year and into next year."
A correction takes hold when prices for an asset fall 10 percent or more from a recent high. Brent was trading at $71.68 a barrel on Monday, off its recent high of $73.09, while U.S. crude was at $66.45, down from Friday's peak of $67.76.
In a note last week, Barclays raised its second-quarter price target to $68 for Brent, but Cohen laid out the bear case for oil in the second half.
First, Barclays said the supply impact of renewed sanctions on Iran is being overstated and says the market has already priced in falling output from Venezuela.
Second, American oil production is consistently rising to record highs, despite U.S. drillers exercising more financial discipline.
Third, the supportive oil market backdrop in the first quarter of 2018 was partly due to one-off factors like severe weather that sidelined some U.S. oil supply.
Last and most importantly, Barclays said it expects the oil market will swing back into surplus in the final months of the year and remain oversupplied through 2019.