An executive at Goldman Sachs warns that tensions in the Middle East will lead to a sharp drop in global oil supply, forcing the bank to lift its price forecast for the commodity.
In a new Bloomberg interview, Daan Struyven, Goldman Sachs co-head of global commodities research, says the bank doesn’t see an abrupt end to global oil supply disruption, believing that only 90% of oil production in the Persian Gulf will be recovered by December.
According to Struyven, the disruption will lead to a significant decline in global oil supply this year.
“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.”
Struyven also says the loss in supply will likely be reflected in higher oil prices.
“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. We now look for global oil demand to stagnate, even if at the start of the year we were looking for pretty solid well, demand growth just above a million barrels per day.”
In a worst-case scenario, Struyven predicts that BRENT will trade well above $100 in the last quarter of the year.
“But 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.
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.”
At time of writing, Brent Crude Oil (BRENT) is trading at $117 a barrel.
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