Oil price rally could be sowing seeds of its own destruction

The recent rally in oil prices has been stronger than even we had anticipated. However, prices have already fallen back slightly from their recent peak and we would not be surprised to see some further pull-backs in the coming weeks and months, perhaps triggered by the resumption of interest rate hikes in the US or by a recovery in output as a result of the recent price rises. Nonetheless, the recovery in prices has been consistent with the big picture of diminishing supply, relatively strong demand and improving investor sentiment which we expect will lift prices further over the medium term. This Energy Watch looks at whether the dramatic increase in prices is justified and if high prices now may delay the oil market from rebalancing later in the year.