Goldman Sachs no longer expects oil at $100 this year after market rout

Crude prices fell by about 12% last week amid turmoil in the financial sector

Pump jacks at an oilfield in Texas. Oil prices continued their downward slide on Monday, ahead of an expected interest rate increase by the Fed this week. Reuters

Goldman Sachs has reduced its oil price forecasts for 2023, citing growing crude supplies and lower demand.

The investment bank now expects Brent, the benchmark for two thirds of the world’s oil, to trade at $94 a barrel for the 12 months ahead and $97 in the second half of 2024.

It had previously projected that the benchmark would trade at $100 in both scenarios.

The forecast cut comes after oil prices shed 12 per cent last week — their biggest weekly losses since December — amid turmoil in global financial markets stemming from fears of a banking crisis.

On Monday, oil prices continued their downward slide, ahead of an expected interest rate increase by the US Federal Reserve later this week.

Brent was trading 1.12 per cent lower at $72.45 a barrel at 6.50pm UAE time while West Texas Intermediate, the gauge that tracks US crude, was down 1.39 per cent at $65.81 a barrel.

“Oil prices have plunged despite the China demand boom, given banking stress, recession fears and an exodus of investor flows,” said Goldman Sachs.

“Historically, after such scarring events, positioning and prices recover only gradually, especially long-dated prices.”

Goldman Sachs said that the lower estimates also reflected higher-than-expected crude stocks, lower demand and growing production in non-Opec countries.

The bank left its crude demand forecast for 2023 unchanged as growing consumption in emerging markets is set to “pivot” the oil market back into a deficit from June.

China, the world’s second-largest economy and top crude importer globally, is expected to be the biggest driver of crude demand this year as the Asian country reopens its economy after following a strict zero-Covid policy for about three years.

The International Energy Agency expects global oil demand to reach record levels this year amid a rebound in air traffic and pent-up Chinese demand.

Oil demand growth will increase to 2.6 million barrels per day in the fourth quarter of this year, from 710,000 bpd in the current quarter, the Paris-based agency said last week.

Opec raised its forecast for Chinese oil demand growth but warned of a potential economic slowdown in Europe and the Americas that could weigh on the outlook for crude demand.

Goldman Sachs reduced its demand projections for Europe and North America for this year and the next, and said it expects 2024 crude demand to be lower by 600,000 bpd.

Interest rate increases to tame stubborn inflation have also affected oil futures.

Rate increases can dampen economic growth and reduce fuel demand.

Despite the recent market unrest, the European Central Bank decided to raise interest rates by 0.5 per cent last week and said there was no need for its monetary policy plans to be adjusted.

US Federal Reserve officials will meet on Tuesday amid market expectations of a 25 basis point rate increase.

Apart from recessions concerns, a jump in interest rate volatility and related liquidity shocks “exacerbated” the oil market sell-off, Goldman Sachs said.

On the supply side, non-Opec production is expected to rise by 300,000 bpd in 2023 and by 200,000 bpd in 2024, the investment bank said.

“We still assume that Russia gradually implements its announced 500,000 bpd production cut in the context of Opec+ co-ordination,” said Goldman Sachs.

“However, following the decline in prices, we have nudged down our US supply path and now think [Opec+] will only increase its output in the [third quarter of 2024].”

On Sunday, Iraq’s Oil Minister Hayan Abdel Ghani said the country was committed to complying with its output cut of 220,000 bpd in line with the oil group’s policy to tighten global supply and support prices.

The country is ready to increase production if required to do so by the alliance, Reuters quoted Mr Abdel Ghani as saying during a conference in Baghdad.