Goldman Sachs (NYSE:GS) has spotlighted a potential bullish trajectory for crude oil prices, suggesting that Brent could soar to as much as $107 per barrel (bbl) by December next year, a significant leap from its current forecast of $93/bbl for the same period.
This revision comes in the wake of Saudi Arabia and Russia's unexpected announcement to extend their unilateral additional output cuts by three months through December 2023. The markets, caught off guard by this decision, responded with Brent rallying 2-3% to $91/bbl, though it's now down below $90.
The investment bank's analysis identifies two primary bullish risks that could influence this surge in oil prices.
Firstly, there's a mechanical upside risk to their December 2023 Brent forecast of $86/bbl. If Saudi Arabia's supply in Q4 falls short by 500kb/d compared to Goldman's balances, it could push prices up by approximately $2/bbl.
Secondly, and more significantly, if OPEC+ nations decide not to reverse half of the 1.7mb/d cut announced in April 2023 by January 2024, it could lead to a substantial $14/bbl upside risk.
This scenario, combined with the potential Saudi supply surprise for the 2023 fourth quarter, could catapult Brent prices to the aforementioned $107/bbl by December 2024.
However, Goldman Sachs (NYSE:GS) remains cautiously optimistic. While these bullish scenarios are plausible, they are not the bank's baseline view. Goldman Sachs believes that OPEC+ is unlikely to chase Brent prices sustainably above $100/bbl, given the group's emphasis on medium-term stability.
This perspective is shaped by several factors: the aftermath of the 2022 energy crisis, which triggered significant increases in oil supply from the US and sanctioned producers; the recent stabilisation in US shale production costs; and the looming US presidential elections, where gasoline prices and real income will be politically significant.