As oil prices surge, Goldman Sachs, often dubbed the "standard bearer for commodities," has revised its oil price forecast upward. With tightening supply and robust demand, the return of oil prices to triple digits seems imminent.
On September 20, Goldman Sachs rejoined the "100-dollar oil club," raising its 12-month Brent crude oil price forecast from the previous $93 per barrel to $100 per barrel. Goldman Sachs attributes the recent strong rise in oil prices to production cuts by Saudi Arabia and Russia, which have tightened supply. Meanwhile, consumption has surged to record levels. With inventories rapidly declining, the positive outlooks for the two largest global economies, China and the U.S., have also bolstered the upward trend in oil prices.
Global consumption has hit an all-time high, with an expected shortage of 2 million barrels per day in the third quarter and a shortage of 1.1 million barrels per day in the fourth quarter.
Currently, benchmark Brent crude oil prices have risen more than 30% since their March lows, breaking the $95 per barrel mark on Tuesday for the first time since last November, just a step away from the coveted $100 mark.
However, Goldman Sachs believes that most of the upward momentum in oil prices "has already passed," with Brent crude oil prices expected to hover between $80 and $105 in 2024.
They believe that, thanks to strong global demand centered in Asia, OPEC+ can maintain Brent crude oil prices in the $80-105 range in 2024. At the same time, OPEC+ is unlikely to push prices to extreme levels, as it would undermine its long-term surplus demand.
A Growing Bullish Brigade on Oil Prices
Goldman Sachs notes that significant production limits by Saudi Arabia and Russia have driven the strong rise in oil prices in recent months. Additionally, with inventories rapidly declining, the positive outlooks for the U.S. and China, the two largest global economies, have also supported the upward trend in oil prices.
The major economies remain on a soft landing trajectory. Due to cooling inflation and an unexpectedly robust labor market, the likelihood of the U.S. economy entering a recession in the next 12 months has been revised down from a previously predicted 20% to 15%.
Apart from Goldman Sachs, several investment banks have joined the "100-dollar oil club" this week.
Chief Energy Analyst at Energy Aspects Ltd., Amrita Sen, predicts that oil prices may break the $100 mark in the short term.
Even one of the market's most steadfast bears, Citigroup analyst Ed Morse, stated on Monday that geopolitical factors combined with technical trading "could push oil prices above $100 in a short time." However, Citigroup quickly added that there are "continuing signs of easing," with supply growth from non-OPEC+ countries like the U.S., Guyana, and Brazil expected to drive oil prices downward.
Is Oil Peaking?
Goldman Sachs believes that while oil prices entering the triple digits are just around the corner, it also means that most of the upward momentum "has already passed."
OPEC is unlikely to push oil prices to extreme levels, as this would undermine its long-term surplus demand.
In a previous report, Goldman Sachs noted that hedge funds had net sold energy stocks for the first time in three weeks, with sales outpacing purchases (2:1). When hedge funds start shorting energy stocks, it may indicate that the market is betting on oil prices peaking.
Citigroup also mentioned in its report that there are "continuing signs of easing," with supply growth from non-OPEC+ countries expected to drive oil prices downward.
Bjarne Schieldrop, Chief Commodity Analyst at Sweden's largest bank, SEB AB, stated:
If Brent crude oil prices rise to $110 to $120 per barrel, the demand for petroleum products might be more significantly impacted, making such price levels seem too high.