Sep 27, 2022 1:58PM
VOT Research Desk
Discussion Pointers
Despite the growing signs of a global economic slowdown, Goldman Sachs Group Inc. sharply lowered its oil price forecasts, stating that the market is still “critically tight” and that crude would probably rise from its current levels.
In a note on Tuesday, Goldman analysts Damien Courvalin and Callum Bruce stated, “A strong US dollar and falling demand expectations will remain powerful headwinds to prices into year-end.”However, as a result of a lack of investment, low spare capacity, and inventories, the structural bullish supply setup has only strengthened, necessitating significantly higher prices.
In the final three months of the year, the Wall Street bank projects that Brent will average $100 per barrel.
That is higher than the current price, which is around $85, but it is still below its previous forecast of $125.Analysts predict that the benchmark will probably reach an average price of $108 in 2023.In the past, they had predicted $125.
In response to Russia’s invasion of Ukraine in February, oil prices skyrocketed to more than $120 per barrel. They have decreased by 30% since the beginning of June as demand in China, the world’s largest crude importer, has been impacted by coronavirus lockdowns and central banks becoming more hawkish.
Goldman says that despite this, oil markets appear to be assuming that there will be no real economic growth outside of China next year. That is lower than the economic consensus and Goldman’s own projection of 1 percent growth.
Goldman stated, “It would take an economic hard landing to justify sustained lower prices.”
According to the bank, China’s Covid Zero strategy is likely to continue until the middle of 2023.
According to the statement, “a ‘China reopening’ is not so much bullish oil demand as it is a removal of a significant downside risk to global balances and price expectations.”
Goldman advised investors to purchase Brent futures contracts with an expiration date of December 2024 for approximately $71 per barrel.
The bank stated, “We find the opportunity most compelling to position for higher prices than for lower prices,” despite the fact that “we acknowledge that the short-term path to prices is likely to remain volatile.”
According to Goldman, the OPEC cartel, which is led by Saudi Arabia, will probably keep its production close to where it is now for the rest of the year. It stated that a rebound in prices would be aided by a “large cut” from the group, which is scheduled to meet on October 5 with its partners, including Russia.
