Why Oil Prices Are Rising Again — And Why a Pullback Could Be Coming

Why Oil Prices Are Rising Again — And Why a Pullback Could Be Coming

Oil prices have climbed sharply again over the past two weeks, with Brent crude recently pushing above $100 per barrel. The main driver has been renewed tension across the Middle East, particularly the escalating conflict involving the US and Iran.

Recent attacks on Iranian oil tankers, Iranian retaliation and further Houthi attacks on Saudi energy infrastructure have increased fears that global oil supplies could be disrupted. The Strait of Hormuz remains particularly important because a significant proportion of the world's oil normally travels through the region. Gulf exports are still running below pre-war levels, meaning traders are adding a geopolitical "risk premium" to oil prices.

However, there is also an argument that oil prices cannot sustainably remain this high.

Higher oil prices eventually begin damaging demand. Businesses face greater transportation and production costs, while consumers spend more on fuel and energy. This can slow economic growth and reduce overall oil consumption.

The International Energy Agency is already forecasting global oil demand to decline by around 1.6 million barrels per day in 2026, partly because elevated fuel prices are discouraging consumption.

Meanwhile, higher prices encourage producers outside the Middle East, including the US, Canada and Guyana, to increase production, helping replace some lost supply.

This creates a natural ceiling for oil.

Unless Middle Eastern supply disruptions become significantly worse, prices around or above $100 could increasingly weaken demand while encouraging additional production. Therefore, although geopolitical risks could keep oil volatile in the short term, the higher prices climb, the stronger the fundamental case becomes for a correction back down.