It’s the big question: will oil prices soar or stabilise in the mid-$70s-range? Saudi Arabia just cut output by 1 million barrels per day (bpd) to the lowest in two years. But results have been decidedly mixed. Prices spurted briefly to $80 but then retreated to $78 and it seems the Saudi sacrifice, on top of an earlier OPEC cut, won’t send the market skyward.

Behind the underwhelming market demand is, first and foremost, the Chinese giant’s slower-than-expected pandemic recovery. China is the world’s second-largest oil consumer, glugging 14 million bpd, and the economic slowdown there inevitably has had a jarring impact on global oil demand. (India, the world’s third-largest consumer, is 5 million bpd).

“Every time people start to talk about oil markets, prices start to go up, but then we get some really bad data, like China GDP, or export figures or US inflation data, stuff not necessarily linked to oil but destroying every pricing upside,” says commodity intelligence firm Kpler’s lead crude analyst Viktor Katona.

Then, Iran has suddenly come back into the international market, upping oil sales to about 1.5 million bpd in June. That’s the highest export level since 2018. The Americans failed in their efforts to strike a deal with Iran and lift sanctions. But they’re clearly turning a blind eye to Iranian exports in an effort to keep oil prices steady in order not to roil the US economy.

Venezuela, another country that faced US sanctions, is also back in the market and pumping out 1 million bpd. At its late 1990s peak, Venezuela produced 3.5 million bpd. While the US has given Venezuelans the green export light, the country’s long-idled oil production equipment and systems are so degraded it hasn’t been able to up output yet as much as it wants.

Then, of course, there’s the fact higher prices in recent years have, as JP Morgan notes, “incentivised’ production and encouraged the oil companies to keep pumping out their ‘black gold’. US shale producers who’d slowed production when prices fell quickly leapt back into the market. Now they’re pumping out huge amounts of crude though they’re likely to cut back if prices don’t firm somewhat. Shale is expensive to extract so strong prices are key to high production.

There are other factors playing out in global oil markets. Saudi Crown Prince Mohammad bin Salman is said to have told journalists in a rare briefing he’d been ‘back-stabbed’ by his ex-mentor, UAE President Sheikh Mohammed bin Zayed Al Nahya. This fallout could have sharp repercussions in the oil industry as the two sides seek Middle East oil dominance. The UAE is said to be tired of being treated as a younger brother in the oil industry.

The fact is the world economy is moving back into the slow lane — not good news for producers, though India is seen as the standout growth exception. JP Morgan predicts oil supply will climb by 2.3 million bpd in 2023 while demand growth will only climb by 1.6 million bpd this year. Goldman Sachs, too, has sharply pared back predictions oil would reach $95 a barrel by year-end, forecasting now a much more modest $86.

India playing it differently

Global oil prices play a key role in determining India’s economic health. Since the Russia-Ukraine war erupted, India has been playing a very different game from its normal one. In May, India bought an enormous 2.2 million bpd from Russia, confounding pundits who’d raised eyebrows when Indian purchases crossed 1-million bpd and predicted infrastructure constraints would retrain further buying.

Oil consumption usually slows during the monsoon season when the refineries carry out maintenance. India’s July buying from Russia will likely be 1.6 million bpd. Russia, keeping pace with Saudi Arabia, says it will cut production by 500,000 bpd. But if the war lasts, Indian refinery imports could hit new highs next year, Katona says.

India’s usual oil suppliers, Iraq, Saudi Arabia and the UAE, are alarmed by the way we’ve ditched them and turned to Russia. But they recognise the temptation of sizeable discounts reckoned to still be in the region of $9 per barrel. If the Russia-Ukraine conflict ends, India is likely to return to its traditional oil suppliers in the Gulf but for now our oil companies are reaping rich dividends.

Bottom line for prices? More of the same range-bound moves. Says Katona, “We’ll be in the same narrative, same (pricing) cycle, the market starts to realise something, then the macroeconomic cycle kicks in — we’ll stay in the same cycle for months.”