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Goldman Sachs Cuts Oil Price Forecasts Amid US Slowdown and OPEC Policy Shifts

Cyrus ColeSunday, Mar 16, 2025 8:24 pm ET
5min read

Goldman Sachs has revised its oil price forecasts, predicting a range of $70-$85 per barrel for Brent crude in 2024. This adjustment comes as the U.S. economy shows signs of slowing down, with tighter financial conditions and elevated recession odds. The investment bank assigns a 30% to 40% likelihood of a U.S. recession over the next 12 months, which would significantly impact oil demand.

The forecast also takes into account the robust non-OPEC production growth, especially outside of the U.S., and the anticipated return of some of OPEC's reduced production. Despite this forecast range, short-term volatility is expected due to macroeconomic uncertainties and heightened geopolitical risks. For example, current negotiations among OPEC+ countries regarding their 2024 production quotas illustrate the difficult task at hand in balancing the market, which could result in additional price volatility.



OPEC's production policy plays a crucial role in shaping Goldman Sachs' oil price forecasts. According to goldman sachs Research, OPEC production policy and discipline are likely to be key factors supporting the price path in 2024. Two of the biggest OPEC+ producers, Saudi Arabia and Russia, committed to production cuts this year. Saudi Arabia announced a third production cut in June, and Russia declared its plan to cut production by 500,000 barrels a day. Both countries have so far followed through, surprising the market as prior production cut announcements had not been fully implemented. This adherence to production cuts has helped stabilize oil prices and prevent significant drops.

Changes in OPEC's strategy can have a substantial impact on global oil markets. For instance, if OPEC+ countries decide to increase production, it could lead to a surplus in the market, driving down oil prices. Conversely, if OPEC+ countries reduce production, it could create a deficit, leading to higher oil prices. The spare capacity of OPEC+ countries, particularly Saudi Arabia and the United Arab Emirates, is a critical factor in this dynamic. These countries have combined spare capacity of more than 4 million barrels per day, which they can use to offset supply disruptions and stabilize the market.

Goldman Sachs Research forecasts that non-OPEC hydrocarbon liquids supply (excluding Russia) will increase by 1.7 million barrels per day in 2025, with most of the growth coming from the US, Canada, Brazil, and Guyana. However, the spare capacity to counteract supply disruptions remains concentrated in the Middle East, with the UAE, Saudi Arabia, and Kuwait accounting for about 80% of spare capacity. This means that any disruption to oil supply from Iran or other Middle Eastern countries could lead to higher oil prices until the market rebalances.

Geopolitical tensions, such as the Israel-Hamas conflict, significantly influence Goldman Sachs' oil price forecasts by introducing potential supply disruptions that could drive up prices. According to Goldman Sachs Research, the conflict could cause oil price volatility, with spot oil prices experiencing sharp but transitory increases if the situation escalates. Potential supply disruptions include tighter oil sanctions on Iran, Iran retaliating by attempting to block the Strait of Hormuz, an Arab oil embargo, and other Arab producers cutting back on production. For instance, if Iranian oil supply dropped by a million barrels a day due to tighter sanctions enforcement, the price of Brent could rise to the mid-$80s per barrel by mid-2025, assuming that OPEC+ increases its supply throughout the year.

Goldman Sachs Research has considered several scenarios for potential supply disruptions. One scenario involves a 2 million barrel-per-day disruption to Iran's supply for six months, which could temporarily raise Brent crude oil prices to a peak of $90 if OPEC producers rapidly offset the shortfall. Prices could peak in the mid-$90s next year without an OPEC offset. Another scenario involves a 1 million barrel-per-day persistent disruption to Iran's supply, reflecting tighter sanctions enforcement, which could push Brent prices to a peak in the mid-$80s if OPEC gradually offsets the shortfall, and a 2025 peak in the mid-$90s without an OPEC offset.

Historically, when there have been oil supply disruptions in the Middle East, Saudi Arabia and the United Arab Emirates, which have combined spare capacity of more than 4 million barrels, have offset about 80% of lost supply within two quarters. This historical response is a key factor in Goldman Sachs' forecasts, as it indicates that major producers are likely to step in to stabilize the market, albeit with a lag. The rising production from OPEC+ tends to be slower than the drop in supply due to the disruption, which could mean a tighter market and higher prices until the market rebalances.

WTI
Name
Company Introduction
Date
Inventory(USD)
W&T OffshoreWTI
W&T Offshore, Inc.is a Texas corporation originally organized as a Nevada corporation in 1988.The company is an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico.
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In summary, Goldman Sachs' revised oil price forecast reflects the anticipated slowdown in U.S. economic growth by considering indicators such as tighter financial conditions, elevated recession odds, robust non-OPEC production growth, OPEC production policy, and geopolitical risks. These factors collectively support the projection of a stable but volatile oil price range in 2024.
Comments

Post
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03/17

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0
ZestycloseAd7528
23 hour ago
@Anthony Makes sense
0
Stevitop
03/17
Diversify beyond oil, recession's looming large
0
breakyourteethnow
03/17
@Stevitop What's your plan for divesting?
0
Throwaway7131923
03/17
Oil prices might dip if OPEC+ eases up on production cuts. But geopolitical tensions could have other plans.
0
Hungry-Bee-8340
03/17
Geopolitical risks got that rollercoaster effect 😂
0
Smart-Material-4832
03/17
Oil's a tricky beast, man. Geopolitics and OPEC's policy swings could mean big price jumps. Keep your eyes peeled.
0
TheRealJakeMalloy
22 hour ago
@Smart-Material-4832 True dat, bro.
0
werewere223
03/17
Goldman's forecasts seem cautious. I'm holding some energy ETFs, hedging bets with $TSLA exposure on the side.
0
PhilosophyMassive578
21 hour ago
@werewere223 How long you been holding energy ETFs? Any top picks you'd recommend?
0
Sgsfsf
03/17
Middle East tensions + OPEC drama = volatility heaven. Buckle up, traders.
0
-Joseeey-
23 hour ago
@Sgsfsf Got any oil plays in mind?
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03/17

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user74729582
21 hour ago
@Stanley Williams Makes sense
0
stydolph
03/17
Oil prices dancing to OPEC's tune again
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investortrade
23 hour ago
@stydolph OPEC's beat dropping, prices gotta follow.
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Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.
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