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Goldman Sachs Expects No Change in Oil Prices Next Year
Goldman Sachs expects Brent crude to average between $70 and $85 per barrel next year, citing high spare production capacity as factor for keeping a lid on prices, regardless of the actual physical supply situation.
In a recent update, the investment bank noted the perception of an oversupplied market among traders as one reason for its price forecast, which sees the average for Brent crude at $76 for 2025. It added, however, that the downward potential for prices is just as limited, citing the “price elasticity of OPEC and shale supply”.
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Goldman allowed for the possibility of Brent crude jumping to the higher end of the price range next year early on and even exceeding it in case of a disruption to Iranian supply caused by the potential tightening of U.S. sanctions after Donald Trump takes office in January. The investment bank’s analysts estimated the disruption to be 1 million barrels daily.
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They then went on to cite the spare capacity factor again, saying it would determine the medium-term risk for oil prices and that risk would be downward rather than upward. Spare capacity, especially in OPEC, has been cited as a bearish factor for oil prices ever since OPEC and its OPEC+ partners began curbing production.
However, what those citing spare capacity often omit is the fact that the existence of this spare capacity does not automatically translate into physical supply. For the translation to happen, you need deliberate action on the part of the countries holding the spare capacity. Based on the latest moves by OPEC+, there does not seem to be much enthusiasm about tapping that spare capacity at all.
At the time of writing, Brent crude was trading at $74.85 per barrel, with West Texas Intermediate at $70.91 per barrel, both down on Friday’s close. Last week, oil prices logged a 6% increase on geopolitical tensions.
By Irina Slav for Oilprice.com
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Source: https://oilprice.com/
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