Goldman Sachs has significantly revised its oil price forecasts, projecting Brent crude to hit $90 a barrel in the fourth quarter and US West Texas Intermediate (WTI) to reach $83, citing reduced output from the Middle East.
“The economic risks are larger than our crude base case alone suggests because of the net upside risks to oil prices, unusually high refined product prices, product shortages risks, and the unprecedented scale of the shock,” Goldman Sachs analysts led by Daan Struyven said in a note.
The latest forecast now assumes that the normalisation of Gulf exports through the Strait of Hormuz will occur by the end of June, a delay from the previous mid-May expectation.
This outlook also incorporates a slower recovery in Gulf oil production.
Estimates for global oil demand
Goldman Sachs estimates that 14.5 million barrels per day (bpd) of Middle East crude production losses are currently causing a record draw on global oil inventories, estimated at 11-12 million bpd in April.
Consequently, Goldman Sachs expects the global oil market to shift dramatically from a 1.8 million bpd surplus in 2025 to a significant 9.6 million bpd deficit in the second quarter of 2026.
Global oil demand is now expected to fall by 1.7 million bpd in the second quarter of this year and by 100,000 bpd over the entire year of 2026, compared to the previous year, primarily due to the sharp increase in refined product prices, according to the investment bank.
“Because extreme inventory draws are not sustainable, even sharper demand losses could be required if the supply shock persists longer,” the analysts said.
Meanwhile, oil prices were firmer this morning, with recent gains attributed to the collapse of efforts to restart US-Iran peace negotiations.
The breakdown in talks has eliminated the immediate prospect of energy supply normalization through the Strait of Hormuz.
At the time of writing, the Brent crude oil contract was at $101.25 per barrel, up 2.1%, while the West Texas Intermediate price was at $96.21 per barrel, up 1.9%.
“The lack of progress means the market is tightening every day, requiring oil prices to reprice at higher levels,” Warren Patterson, head of commodities strategy at ING Economics, said in a note.
A shortage of approximately 13 million bpd has few immediate alternatives.
Initially, this gap must be bridged using existing reserves, including commercial stockpiles and strategic reserves, according to Patterson.
Geopolitical strategy and sanction tightening
Clearly, the longer this persists, the more demand destruction we will need to see. To see further demand destruction, prices will need to move higher.
However, newswire reports indicated a new proposal from Iran to the US, which stated that the Strait of Hormuz could be reopened, with nuclear negotiations being postponed until a later stage.
US actions aimed at restricting Iranian oil exports are likely to further drive up prices, according to Patterson.
The US has recently intensified its pressure, including seizing a sanctioned Iranian oil tanker in the Indian Ocean last week.
Furthermore, the US has tightened sanctions related to Iranian oil, imposing penalties on China’s Hengli Petrochemical (Dalian) Refinery Co. for buying Iranian oil, and sanctioning roughly 40 shipping companies and vessels that constitute Iran’s “shadow fleet.”
Despite the disruptions in the Strait of Hormuz, the flow of Iranian oil through the waterway has persisted.
The US blockade appears to be a strategy to force a resolution and intensify the pressure on Iran to resume negotiations.
