Lukman Otunuga, a research analyst at FXTM, says the current rally in oil prices may not last if demand for the commodity slows on fears of weakening global economic growth.
Brent crude futures — the global benchmark — reached a five-month high on Monday, peaking at $70.74 per barrel, while US West Texas Intermediate (WTI) futures also peaked at $63.46 per barrel.
The price increase is closely linked to an escalation of internal conflict in Libya, which pumped 1.1 million barrels of oil a day (b/d) in March, adding to supply risks from Iran and Venezuela, fellow members of the Organisation of Petroleum Exporting Countries (OPEC).
But Otunuga said an increase in global supply brought about by the US shale revolution could also keep a lid on the price.
“Given how US Shale production reached a global record of 12.2 million barrels per day (bpd) in March and concerns over plateauing global growth are fuelling fears of reduced demand for Crude, the current upside on oil may be limited,” Otunuga said in a mailed note to TheCable Petrobarometer.
“Any fresh signs of world growth cooling or global supply outpacing demand will signal further downside for Oil markets.”