Goldman Sees Brent Crude Above $120 in Worst-Case Scenario

Goldman Sachs said international oil prices could climb above $120 a barrel in a worst-case scenario involving prolonged disruption to crude shipments through the Strait of Hormuz. If Middle East tensions ease, the bank expects Brent crude to average $80 a barrel in the fourth quarter of this year.

Bloomberg reported on July 20 that Goldman said in a report Brent could top $120 a barrel in the fourth quarter, but only if oil flows through the Strait of Hormuz remain below 45% of prewar levels.

Goldman said crude prices are facing renewed upward pressure as military clashes between the US and Iran intensify and oil shipments from the Persian Gulf fall sharply.

Its base case was more subdued. Goldman projects Brent will average $80 a barrel in the fourth quarter and $75 next year if tensions in the Middle East gradually ease. Even so, the bank said risks to the oil-price outlook are tilted to the upside because shipping disruptions could extend beyond the Strait of Hormuz to the Red Sea.

Oil prices have already jumped this month as fighting between the US and Iran resumed and Yemen's Houthi rebels threatened to block Saudi oil shipments. Brent recently traded above $91 a barrel. It also rose past $126 in late April, when the war was in its early stages.

Goldman added that slower Chinese crude imports and greater elasticity in global demand could partly limit gains driven by supply shocks.

The bank said the diesel market is more vulnerable to supply disruptions than the crude market. Inventories were already low before the war, and strikes on Russian refining facilities, hurricanes, heat waves and delays to refinery maintenance could worsen diesel shortages more than crude shortages. Goldman therefore recommended a trade betting on a short-term rise in European diesel prices as a hedge against geopolitical risk.

Park Su-bin, Hankyung.com reporter waterbean@hankyung.com