Goldman sees upside for oil prices amid supply concerns

Goldman Sachs expects Brent crude prices to rise in the fourth quarter, potentially reaching $77 a barrel. The bank’s outlook is driven by several key factors, including a recent interest rate cut by the Federal Reserve and strong US economic data. Additionally, Hurricane Helene’s formation reminds markets that hurricanes still have the power to disrupt oil supplies.

Despite a 4% rise in Brent crude last week due to escalating conflict in the Middle East, the market saw a sell-off on Monday following more peaceful signals from Iran’s president. As of Tuesday morning, Brent was trading around $74.35 a barrel for December delivery.

Goldman’s analysis suggests a decline in global supply of about 500,000 barrels per day (bpd), with lower production from shale regions in Canada, Russia and the US. Meanwhile, global demand is rising, particularly in OECD countries and China, with the possibility of further Chinese policy easing helping to boost demand.

While much of the recent price recovery has taken place in long-dated oil contracts, Goldman believes the spread between one-month and 36-month Brent prices should be $8 wider than it currently is . They also noted that Brent’s implied volatility is low, sitting in the 17th percentile.

Goldman reiterated its previous trade recommendation for European distillate, although it acknowledged that this strategy has underperformed. Since March, a crack gasoline/Brent swap they recommended has lost nearly $8 a barrel.

Overall, Goldman sees upside potential for oil prices in the near term, but market volatility and geopolitical events are likely to keep traders on their toes.

Separately this week, Russia is apparently planning lower oil revenues in its 3-year budget, as its plans for low prices and a relaxed tax regime cut oil revenues by 14% over the time frame.

By Julianne Geiger for Oilprice.com

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