Goldman Sachs convinced oil prices will recover after 'transient' weakness

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By Senad Karaahmetovic

Goldman Sachs commodity strategists today doubled down on their bullish oil stance. The current weakness in oil prices is just "another transient speed bump on the rocky road higher," the strategists told clients in a note.

With oil prices down 20% over the past month, mostly on growing recession fears, commodity investors have been increasingly concerned about the outlook for oil prices in 2023 given the rising recession risks. As a result, the strategists lowered their forecasts.

"We now expect a surplus of 1.7 mb/d in 4Q22 and 1.3 mb/d in 1Q23, diminishing the risk of a winter price spike, lowering our 1Q23/2Q23 Brent price forecasts to $90/95/bbl respectively from $110/bbl."

Higher-than-expected Russian flows have also weighed on oil prices, although the strategists say they are likely to moderate in the future. Overall, they see oil prices benefiting from the stronger demand next year, mainly fueled by China's reopening and recovering international travel.

"Alongside this, is the manifestation of a decade of underinvestment, with global ex US/OPEC+ production declining through 2026. This will occur with stocks and spare capacity still near record lows. Meanwhile, US shale faces bottlenecks, but more broadly, the industry has matured, with a focus on shareholder returns, returning market power to OPEC (the Old Oil Order)," the strategists wrote in a client note.

Along these lines, they see Brent oil prices hitting $105/bbl in 2024.