Crude oil has experienced its best quarterly gain since the initial months of the war in Ukraine, but Wall Street analysts are skeptical about the longevity of the rally. Despite the impressive gains, high oil prices are starting to impact demand, with gasoline consumption dropping in July and airlines reporting lower-than-expected sales. Analysts believe that unless there is a supply crisis, oil prices are unlikely to stay above $100 per barrel in the near future and are more likely to hover around $90 for the rest of the year.
J.P. Morgan analysts pointed out that the demand risks for oil are shifting to the downside, especially as pump prices surge and the peak seasonal travel period comes to an end. The fourth quarter is expected to see demand concentrated in sectors that are more sensitive to economic growth. Furthermore, UBS analysts anticipate that higher oil prices will eventually lead to increased production by U.S. producers, despite the current drop in the number of active oil-targeted rigs in the country.
In response to high oil prices, Saudi Arabia may tap into its spare crude capacity to lower prices. However, currently, the country is benefiting from favorable revenues, and there are concerns about the potential damage that higher prices could inflict. Energy stocks performed well in the past week, with the energy sector being the only positive sector in the S&P. Overall, while the recent gains in oil prices have been notable, analysts do not anticipate the rally to last, as higher prices begin to have a negative impact on demand.