Oil Price Rally Faces Challenges as Demand Destruction Looms
The price of Brent crude oil has surged to nearly $110 per barrel after a 13% weekly gain, but experts warn that the rally may soon face challenges in sustaining itself.
The strong increase is largely due to supply fears, including disruptions through the Strait of Hormuz and OPEC's output decline by about 640,000 barrels a day in August.
However, as oil prices climb higher, they become more difficult to sustain. Dennis Kissler of BOK Financial notes that futures are in an 'overbought condition' with a 'corrective phase due', which could lead to a price correction even if supply risks remain elevated.
The International Energy Agency expects global oil demand to decline by about 1.6 million barrels a day in 2026, driven by elevated fuel costs and disrupted trade already weighing on consumption. Naeem Aslam, chief investment officer at Zaye Capital Markets, notes that 'supply tightness supports prices, but demand destruction can cap the upside if crude remains elevated for too long'.