A Goldman Sachs executive warned that tensions in the Middle East will lead to a sharp decline in global oil supplies, forcing the bank to raise its price forecasts for the commodity.
In a new interview with Bloomberg, Dan Struyven, co-head of global commodities research at Goldman Sachs, said: He says The bank does not expect a sudden end to the 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 supplies this year.
“We estimate that the world will cumulatively lose about two billion barrels of Persian oil production by the end of the year. To put that into perspective, this represents approximately 20% of global oil inventories in the entire world.”
Struyven also says the loss of supply is likely to be reflected in higher oil prices.
“Brent crude was pushed up to $90 a barrel by the fourth quarter. That’s about $30 higher than our forecast before it was higher, about $100 a barrel if we don’t include some significant losses in demand. We’re now looking at stagnant global oil demand, even if at the beginning of the year we were looking at very strong demand growth of just over 1 million barrels per day.”
In a worst-case scenario, Struyven expects Brent crude to trade at more than $100 in the fourth quarter of the year.
“But if you go to the extreme downside scenario that we’re considering, where you get one month of additional delay in the normalization of Persian Gulf export flows and some damage to oil production capacity, either damage to infrastructure or the probability of the strait never opening is more than 70%, in that scenario, we see Brent at $120, so that by the fourth quarter, product prices will arguably be much higher as well.
In this scenario, the probability of recession in various economies rises, especially in the most vulnerable countries, emerging markets, Asia, Africa, frontier economies, and perhaps some European countries as well.
At the time of writing, Brent crude (BRENT) is trading at $117 per barrel.
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