Scientists put the supernatural phenomenon down to simple gravity and behaviour known as 'response expectancy', which means people will try to move the pencil through their movement or breathing without realising because they are so engrossed in the moment.
'Trying to balance one pencil upon another results in a very unstable system,' the head of the Anomalistic Psychology Research Unit at the University of London told Live Science.
Christopher French added: 'Even the slightest [draft] or someone's breath will cause the top pencil to move... and the precariously placed pencils will move around regardless of whether you summon a demon after balancing them.'
But parents at the Juan Pablo Duarte Primary School in the town of Hato Mayor in the Dominican Republic, where the original video came from, say their children were 'possessed by Satan' after playing the playground game.
'Three students were absent from class because their parents believed they were possessed by the devil,' deputy headmistress Jovita Jimenez told MailOnline.
Ms Jimenez's school is one of various throughout the Hato Mayor region of eastern Dominican Republic, a country where voodoo black magic is common, that has been subjected to what she describes as the 'satanic craze'.
The pastime has since gone viral over social media, as people film themselves asking 'Charlie' whether he's there to hurt or kill them, and then uploading their terrified reactions to YouTube marked with the hashtag #charliecharliechallenge.
The first version of the game surfaced in a YouTube video from June 2014 titled 'Jugando Charly Charlie' in which two boys formed a hexagon with pencils and summoned the spirit.
In January this year, a pencil blog published an article explaining the rules of the game as well as the now-infamous Charlie Charlie chant.
The trend was picked up by Dominican television station Telenoticias which reported on the game's mysterious effects at a local school in Hato del Rey.
'The students and parents alike have been terrified. Many have appeared with inexplicable bruises on their bodies,' said Ms Jimenez following the day's classes in the Caribbean island community.
'It's a craze that has gone too far... It's very dangerous for a young child to play with contacting the paranormal and diabolical,' Doctor Kelven Guerrero, who works at the Hato Mayor del Rey Hospital, told MailOnline.
He added: 'It can cause a great amount of trauma in a young person... The entire community has been very disturbed by it. It's caused a lot of discomfort.
'One of the major problems has been that in order to start playing a child must ask permission of Charlie to play.
'But Charlie also has to give permission for the game to end,' he ominously added. 'There have been many times when he has not done so and it has caused great trauma in the child.
'It's dangerous for a child to stop playing "Charlie Charlie" without his permission.'
In the video report by Telenoticias, one student at the school complained of being unable to sleep following his experience with the game, complaining that he could feel 'the Devil's hand brushing across his face before he slept'.
'They are opening the door to the devil', said Fernando Betancourt, a local priest whose impassioned condemnation of the game was the spark which set off the viral phenomenon.
'Satan comes here to destroy and kill, and through this game that is exactly what he is going to do to our children.'
A recent discovery in the English-speaking world, the game has however long been played in Latin America.
Thought to have originated in Spain, the Juego de la Lapicera or 'Pen Game' has been a playground staple for many years, and is especially popular at sleepover parties according to Maria Hernandez of Andalucia in southern Spain.
'We used to play it when we were kids', she told MailOnline from her office at the Doce de Octubre Hospital in Madrid. 'It was a fun thrill but we never really believed in it.
'Although we never used to ask it horrible questions like what they are doing online now; it was more to find out which boys fancied us at school.'
As with many facets of Spanish culture, the game has penetrated much of Latin America where the belief in the supernatural has deep roots.
'My girls have always been scared of it', says Margarita Mondragon, a Mexico City woman whose youngest of four daughters says her classmates have come to blows over the terrifying game.
'The school completely bans it, but there's nothing the teachers can do to control the students outside of class hours.'
'It's satanic', says Oriana Gonzalez, a Venezuelan woman who says despite the game's popularity in her country that it is very associated with witchcraft.
'It's like santeria [a form of Caribbean witchcraft] or voodoo,' she says. 'Even if you don't believe in it, no good can come from messing with that'.
The voodoo religion is widely practiced throughout the Caribbean, particularly in rural communities such as Hato Mayor.
'There's a deep-seated belief in the supernatural here, and the mind can play terrifying tricks on the body,' says Dr Luis Guillermo Hernandez, the director at Antonio Mursa Regional Hospital in southern Hato Mayor Province.
'For that reason alone we don't recommend this game to anyone, but in children it can be very dangerous.'