Goldman Sachs Raises Oil Price Forecasts Amid Record Inventory Draws

Goldman Sachs Lifts Oil-Price Forecasts Amid Strait of Hormuz Disruption

The prolonged closure of the Strait of Hormuz has led to a significant disruption in the global oil market, prompting Goldman Sachs Group Inc. to revise its oil-price forecasts upward. In a note released on April 27, analysts Daan Struyven and Yulia Zhestkova Grigsby stated that Brent is expected to average $90 a barrel in the fourth quarter, up from a previous outlook of $80.

The bank's revised forecasts for the current and third quarters also reflect the severity of the supply shock. The analysts estimate that 14.5 million barrels a day of Persian Gulf crude production losses are driving global oil inventories to draw at a record 11 to 12 million barrel-a-day pace in April. This extreme inventory draw is likely unsustainable, and even sharper demand losses could be required if the supply shock persists.

The Strait of Hormuz, a key chokepoint in the global oil market, has been severely disrupted due to the Iran war. Daily transits through the strait have been cut to near zero, resulting in millions of barrels of daily supply being shut-in across the region. This has led to a significant rally in Brent prices, with the commodity rising by almost 50% since the start of the conflict in late February. Brent futures last traded just below $108 a barrel, on course for a sixth daily gain.

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The disruption in the global oil market has significant economic implications. Goldman Sachs expects a deficit of 9.6 million barrels a day this quarter, compared with a surplus last year. The bank's revised forecasts also suggest that the economic risks are larger than its crude base-case alone suggests, due to the net upside risks to oil prices, unusually high refined-product prices, products shortages risks, and the unprecedented scale of the shock.

Goldman Sachs assumes a normalization in Gulf exports by end-June, versus mid-May prior, and a slower Gulf production recovery. The bank's revised forecasts reflect the severity of the supply shock and the potential long-term implications for the global economy.