Oil price projections dip: Goldman lowers prediction from $125 to $100

Goldman Sachs, the renowned investment bank, has issued a series of forecasts for Brent oil prices, predicting a significant increase in the last three months of the year and beyond.

In a recent report, Goldman Sachs analyst Damien Courvalin recommended buying Brent futures contracts expiring in December 2024, trading at a price of $71 per barrel. The bank continues to believe that the structurally supportive supply situation necessitates significantly higher prices, with an expectation of the Brent oil price averaging $100 per barrel in the last quarter of 2022.

However, the strong US dollar is expected to continue weighing on oil prices until the end of the year, according to Goldman analysts. This trend, coupled with signs of a global economic slowdown, has led to a lowering of Goldman Sachs' oil price forecast for the last quarter of 2022 from $125 to $100 per barrel.

Goldman Sachs expects China to maintain its zero-COVID strategy until mid-2023, which could curb oil demand. However, the bank believes that a 'reopening' of China is less about a boost to oil demand than removing a significant downside risk to global balances and price expectations.

The bank's forecast of 1% economic growth next year is below the consensus of economists. Goldman analysts predict the reference grade price will average $108 in 2023, down from their previous forecast of $125.

The fall in oil prices since early June, due to central banks adopting a more restrictive stance and COVID-19 restrictions in China curbing demand, has been significant enough to lower Goldman Sachs' expectations for the remainder of the year.

However, Goldman Sachs believes that it would take an economic hard landing to justify sustained lower prices. The bank states that oil markets appear to be pricing in no real economic growth outside of China next year.

The OPEC+ group, led by Saudi Arabia, is likely to keep its production near current levels for the rest of the year. A large cut from the OPEC+ group, which will meet with its partners on October 5, would contribute to a price increase, according to Goldman.

Goldman Sachs believes that the structurally supportive supply situation, due to underinvestment, low spare capacity, and inventories, necessitates significantly higher prices. The bank also believes that oil prices are likely to rise from current levels as the market remains "critically tight."

In February, oil prices surged above $120 per barrel following Russia's invasion of Ukraine. However, the current price of Brent oil is significantly lower, providing an opportunity for investors who follow Goldman Sachs' recommendations.