Goldman Sachs has raised its oil price forecast as disruption to energy production in the Gulf continues amid the ongoing Middle Eastern conflict. The investment bank's commodity analysts now project that Brent crude will trade at approximately $90 per barrel in the final three months of the year, up from a prior projection of $80.
Extended Disruption and Inventory Impact
In a note published on Sunday, the analysts forecasted that oil exports from the Middle East will only normalize by the end of June, rather than by mid-May, with the crisis already having cut oil inventories by up to 12 million barrels per day in April. Goldman noted that there would be long-term “scarring” of Gulf production capacity of about 500,000 barrels per day.
Surging Prices and Market Reactions
Brent crude jumped 2.1% in early Monday trading to $107.50, with prices up 78.5% this year to date, as optimism over peace talks faltered once more over the weekend. Since April 17, when peace talks between the US and Iran initially hit a wall, prices have surged more than 20%. The US naval blockade, which was enforced on April 13, has also impacted prices.
In early March, prices rocketed to $120 per barrel, but the analysts do not see this recurring. They wrote: “Prices remain below the late March peak, likely because market expectations of Hormuz reopening have reduced the risk premium and led to destocking.” Longer-dated Brent futures also show the market is expecting oil prices to fall, with December futures trading at roughly $84.80 a barrel.
Global stocks also rallied during Monday trading, as equity investors remained cautiously optimistic on peace talks, following reports of an Iran proposal to the US to reopen the Strait of Hormuz.
Economic Fallout and Risks
Goldman analysts also warned that the economic fallout from higher energy prices would be greater than the headline price of oil suggested, arguing of the risk of product shortages and “the unprecedented scale of the shock.” The bank noted the risks of US oil export restrictions, which could further increase the gap in prices between Brent and US oil.
Investors are for now hoping for the resumption of peace talks between the nations, after Trump cancelled a trip by his envoys, while Tehran said it refused to negotiate under threats. But Iran did convey a plan through Pakistani mediators, according to people familiar with the matter, calling for an extension to the ceasefire so the countries can come to a permanent solution to the conflict. It also reportedly refused to discuss nuclear weapons until the US blockade on the waterway was lifted. While plans were passed to the White House, it is unclear whether the US will explore them, with Trump expected to hold a situation room meeting on Iran with his national security and foreign policy team on Monday.
