Goldman Sachs Reiterates $100 Brent Price Forecast, Expects Oil To Rally If US Avoids Recession

Despite the sharp declines experienced by oil prices in recent weeks, Goldman Sachs GS reiterated its forecast for Brent prices of $95 by December 2023 and $100 for April 2024.

Supply deficits are expected to surge in the second half of the year, the firm predicts.

The selloff was mostly driven by recessionary fears about demand, the U.S. banking crisis and reports about increased oil production in Russia, Iran, and other OPEC nations.

The United States Oil Fund USO, an exchange-traded fund that tracks WTI prices, is down 5% thus far this year. It witnessed an 18% dip between mid-April and early May, after surging nearly 25%. 

Further increases in emerging market demand, along with OPEC cuts, will result in oil supply shortfalls in the second half of the year, according to Goldman Sachs. The investment bank forecasts a roughly 90% compliance rate for the announced 1.16mb/d drop in OPEC+ ex-Russia output, as the nations who announced the additional cut had a solid compliance track record.

Chart: Oil Prices Have Been On A Roller Coaster Since March 

What's Next? Goldman analysts remarked that forward prices appear exceptionally low in comparison to analysts' consensus predictions, with the difference between 12 months ahead Brent consensus estimates ($90/bbl) and futures ($70/bbl) ranking in the 98th percentile in its history. 

The Goldman Sachs model forecasts that oil spot prices in May 2023 will be 16% higher than today's 12-month forward in the absence of a US recession, at $81/bbl, but only 4% lower in the event of a recession, at $67/bbl.