Oil price rally may be short-lived: Analyst
Its head of markets strategy, Heng Koon How, said the rally, which has recovered all losses since April's "Liberation Day" tariff shock, faces ample global supply buffers and growing risks to global demand.
"The jump in Brent crude is driven by geopolitical risk, but it's still too early to call for a sustained rally. We need to see how Iran retaliates and how Saudi Arabia and OPEC+ respond," Heng said in a research note today.
Brent futures climbed nearly 10 per cent last Friday, briefly touching US$78.50 before settling at US$75. This reversed a two-month slide triggered by US tariff moves and Saudi-led supply resumptions.
Heng noted that past conflicts between Israel and Iran in 2024 failed to push prices higher for long, due to rapid de-escalation and resilient global supply.
"A key difference now is the intensity. This latest round has already seen significant missile exchanges, and there is real concern about regional infrastructure being targeted," he said.
He added a worst-case scenario would involve Iran attacking US military bases or oil facilities in the Middle East, which could disrupt flows through the Strait of Hormuz, a vital global shipping lane.
In such a case, oil prices could spike above US$100 per barrel. However, the supply side remains well-positioned to cushion potential shocks.
"The US now produces more than 13 million barrels per day (bpd), while Saudi Arabia has spare capacity to ramp up output by two to three million bpd if needed.
"OPEC+ has already pledged to restore two-thirds of their pandemic-era cuts by year-end. They have both the capacity and the motivation to calm markets if prices overheat," Heng said.
UOB maintained its Brent crude forecast at US$65 for the third quarter and US$60 for the fourth quarter, while also pointing to another growing concern over weakening demand.
"While the focus is currently on supply disruption, the demand picture is deteriorating. The World Bank has already downgraded global growth to 2.3 per cent, citing trade uncertainties from the Trump administration's policies," Heng said.
With the global economy potentially slowing into 2026, energy consumption may taper, putting downward pressure on prices.
"For now, we are watching the two key variables, namely Iran's retaliation and OPEC+'s reaction. Until there is more clarity, we see no reason to revise our forecast," he added.
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