Why oil prices could stay elevated for years
What's the story
Goldman Sachs has warned that the risks to oil prices remain tilted toward the upside in the near term and into 2027. The bank's analysis shows that several past major supply shocks have been persistent, indicating a possibility of oil prices staying above $100 per barrel. The warning comes as Brent crude, a global benchmark for oil pricing, surged over $119 a barrel on Thursday due to Iran's attack on energy facilities across the Middle East.
Conflict impact
Brent crude's surge attributed to Iran-Israel war
The surge in Brent crude is largely attributed to the ongoing war between Iran and US-Israel. The conflict has led to widespread shutdowns across Gulf states and raised concerns over the stability of oil supply chains. Goldman Sachs' base case scenario predicts a gradual recovery in oil flows from April, with Brent easing into the $70s by Q4 2026. However, this outlook remains uncertain due to the Iran war and potential reopening of the Strait of Hormuz.
Market dynamics
Goldman Sachs analyzed past major supply disruptions
Goldman Sachs also noted that supply could remain constrained for longer if production capacity is damaged. However, output could increase if the Organization of the Petroleum Exporting Countries (OPEC) decides to use its spare capacity once flows resume. The bank analyzed the persistence of production losses during five major supply disruptions over the last 50 years and found that these shocks have been long-lasting.
Supply forecast
Significant downside risks to long-term supply
Goldman Sachs' base case assumes that oil production will normalize within four weeks of a full reopening. However, the bank has flagged significant downside risks to long-term supply, especially from Iran and offshore production. In the near term, Goldman Sachs expects oil prices to continue rising while flows through the Strait of Hormuz remain constrained.
Price projection
Brent could exceed its 2008 peak
Goldman Sachs has warned that Brent could exceed its 2008 peak if disruption risks persist. The bank also noted that any perceived increase in the risk of US export curbs could further widen the Brent-WTI spread. This highlights the potential impact of geopolitical tensions and trade policies on global oil prices in the near future.