The recent oil price strength is largely due to the economic environment in the US.

This is driven by increased expectations of interest rate cuts and the possibility of achieving this without triggering a recession, which is crucial for oil markets. Observers are now pricing in two interest rate cuts, with the first one expected in September. Longer term, whether it’s a Trump or Biden win, big spending by government seems likely, which will initially boost growth before concerns about inflation and fiscal deficits arise. Fundamentally however, not much has changed. If there’s no significant escalation in conflicts or other major exogenous factors, the oil market should continue to oscillate within the same price corridor around the mid-$80’s.

Outlook for global demand in Q3?

The picture is complex. We currently have the biggest gap ever in demand growth forecasts, particularly the IEA and OPEC. The spread is between 1.1 million b/d and 2.4 million b/d. In the US, a soft landing is expected with slightly lower GDP growth rates than the last two years. In China, GDP stabilization around 5% would be good, prompting government action hopefully towards deregulation and liberalization, and not just a focus on exporting their way out of trouble.

What factors could propel oil to $90?

The risk premium has kept the price corridor currently above $80, not fundamentals. China oil demand has been higher than it would have been at current global oil prices, because it had access to cheap Russian oil. But even if China stabilizes, India is poised to drive demand growth, along with the Middle East to some extent. When putting these pieces together, the demand side adds up to a stable range of around 1.1 million b/d, with some estimates going up to 1.5 million b/d. On supply, we are currently dealing with constraints that are also keeping prices above $80, such as OPEC+ cuts, geopolitical constraints like the conflicts in Ukraine and Middle East, and natural constraints like hurricanes, which are now becoming more significant and more difficult to quantify. Without all these factors, prices would likely be lower.