Goldman Sachs Lowers Brent Crude Oil Price Forecast

Investing.com — Goldman Sachs, in a note dated Monday, adjusted its forecast for Brent crude oil prices, lowering the expected trading range to $70-$85 per barrel. This revision marks a $5 per barrel reduction from previous estimates and is driven by several key factors, including unexpectedly high OPEC inventories, slower-than-anticipated demand growth from China, and an increase in U.S. oil production.

The updated forecast underscores Goldman Sachs’ cautious outlook on global oil markets, shaped by the intricate balance of supply, geopolitical risks, and economic factors.

Factors Influencing the Price Revision

One of the primary drivers behind Goldman Sachs’ decision to lower its Brent oil price range is the unexpected stability in OPEC commercial inventories. Contrary to earlier expectations of drawdowns during the summer months, inventories have remained higher than anticipated. This stability is largely attributed to a surge in U.S. liquid supply, which has offset some of the seasonal demand.

Additionally, weaker demand growth from China has played a crucial role in this inventory buildup, contributing approximately $3-$4 per barrel to the downward revision of the Brent price range.

Increase in U.S. Oil Production

The increase in U.S. oil production has also significantly impacted Goldman Sachs’ revised forecast. “Our August US Lower 48 crude production nowcast has risen to 11¼ mb/d, 0.2 mb/d above our expectations,” the analysts stated. This increase has been driven by efficiency gains among U.S. shale producers who have continued to enhance productivity despite challenging market conditions.

Slower Demand Growth

China, a key engine of global oil demand, has exhibited a marked slowdown in demand growth. Structural changes within China’s economy, including a shift from oil to electricity in transportation and weaker petrochemical demand, have dampened the country’s oil consumption. As a result, Goldman Sachs has lowered its forecast for global oil demand growth in 2024 from 1.2 mb/d to 0.9 mb/d, reflecting concerns about the sustainability of demand recovery amid ongoing challenges.

Long-Term Outlook and OPEC’s Role

In addition to immediate factors, Goldman Sachs has revised its long-term outlook for Brent oil prices. The fair value estimate for long-dated Brent prices has been reduced by $2 per barrel to $70 per barrel. This adjustment is influenced by efficiency gains in U.S. shale production, an upgraded outlook for peak oil production projects, and expectations of cheaper global natural gas prices starting in 2026.

Goldman Sachs expects that OPEC will begin to unwind its extra voluntary production cuts by the fourth quarter of 2024, potentially shifting the market from its current short-run equilibrium toward a more long-term approach focused on non-OPEC supply discipline. With OPEC increasing production, there may be additional downward pressure on Brent prices if the organization aims to maintain its market share while balancing global demand and supply.

Conclusion

While Goldman Sachs’ revised forecast for Brent oil prices reflects a cautious outlook, various risks could influence market dynamics. Short-term risks may lead prices to dip below the $70 floor, driven by high spare capacity, ongoing geopolitical tensions, and potential reversals of OPEC’s cuts. Conversely, unresolved geopolitical conflicts and supply disruptions could increase oil price volatility.