Goldman Sachs has raised its oil price forecast due to expected supply disruptions in the Middle East, according to a Bloomberg interview with Daan Struyven, the bank’s co-head of global commodities research. Struyven stated that the bank does not anticipate an abrupt end to global oil supply disruption, with only 90% of oil production in the Persian Gulf expected to be recovered by December. The supply loss will likely drive higher oil prices throughout the year.
Supply Loss Estimates
According to Struyven, the disruption will result in a significant decline in global oil supply. “We estimate that the world will lose cumulatively about two billion barrels of Persian oil production by year end. To put that in perspective, that is roughly 20% of global oil inventories in the whole world,” he stated.
Price Forecast and Demand Outlook
Goldman Sachs has upgraded its Brent crude forecast to $90 per barrel by the fourth quarter, representing a $30 increase from the bank’s prior forecast. “Our Brent upgrades to $90 a barrel by the fourth quarter. That’s $30 higher almost than our forecast before that would be even higher, around $100 per barrel if we did not incorporate some significant demand losses,” Struyven explained. The bank now expects global oil demand to stagnate, reversing earlier expectations for demand growth of approximately one million barrels per day.
Worst-Case Scenario
In a more severe scenario, Struyven predicted significantly higher prices. “If you go to the severely adverse scenario that we consider, where you get one month of additional delays in normalization of Persian Gulf export flows and some damage to oil production capacity, either damage to infrastructure or the possibility that the strait never opens more than 70%, in that scenario, we see Brent at $120, even by the fourth quarter, product prices arguably would be significantly higher as well,” he said.
Struyven also warned of broader economic consequences in the worst-case scenario. “And in that scenario, the probability of recession for various economies goes up, I would say, especially in countries that are more vulnerable, emerging markets, Asia, in Africa, frontier economies, potentially some European countries as well.”
Current Market Price
At the time of reporting, Brent Crude Oil was trading at $117 per barrel.
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