Goldman Sachs no longer sees $100 oil in 2023

Last week, oil prices had their worst week since the start of the year, falling off a cliff amid renewed fears for the global economy following the collapse of two major US banks and the near-collapse of Credit Suisse. While most near-term price forecasts have been bullish due to pro-bullish oil fundamentals, things are now starting to change. Tight supply, cited by virtually all forecasters as the main reason for forecasting oil price increases, is giving way to fears of an economic slowdown that would erode demand and drive prices down.

Goldman Sachs has already revised its oil price forecast for the rest of the year. Previously expecting Brent to hit $100 in the second half, the investment bank now expects the international benchmark to only rise to $94 a barrel over the next 12 months. For 2024, Goldman analysts expect Brent crude at $97 a barrel.

“Oil prices have fallen despite strong demand in China given banking stress, recession fears and investor exodus,” Goldman said in a note last week. quoted by Bloomberg. “Historically, positioning and pricing recover only gradually after such scars, especially long-term prices.”

Indeed, as far as events go, this one left a serious scar. Brent rough went from over $80 a barrel to under $75 a barrel, and West Texas Intermediate fell nearly $65 a barrel. And this has happened while authoritative forecasters such as the IEA and OPEC recently said they expect stronger growth in demand than supply.

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That reports a recent CNBC report41 percent of Americans are preparing for a recession and for good reason. Despite seemingly endless media debates about whether the world’s largest economy is already in recession, about to enter recession, or will succeed in avoiding recession, the forecasts are not optimistic.

“What you’re really seeing is a significant tightening of financial conditions. What the markets are saying is that this increases the risk of a recession, and rightly so,” said Jim Caron, chief macro strategy for global fixed income at Morgan Stanley Investment Management. told CNBC earlier this month.

“Stocks are down. Bond yields are down. I think another question is, it looks like we’re pricing in three rate cuts, is that happening? You can’t rule it out,” Caron said.

Reuters’ market analyst John Kemp continued in January when he prediction that there will be a global recession one way or another and that debates are essentially pointless.

Referring to the cyclical nature of economic growth, Kemp envisioned two likely scenarios: one in which the recession starts earlier in the year as a natural consequence of the events of the past few years, and another in which central bank-driven growth leads to even higher inflation, which in turn leads to a slowdown in lower consumption.

Whichever scenario occurs, it will lead to lower demand for oil, as is normally the case during recessions. And lower demand will, of course, depress oil prices, albeit temporarily. Because lower prices stimulate demand, even in a recession.

But there is an important detail here. The recession forecasts focus on the UKthe EUthe US, And Canadalike Australia. There is no talk of a recession in China or India. Because China and India are going to grow this year, and as they grow, they will consume more oil. Meanwhile, crude oil supplies don’t seem to be going much further.

Be that as it may, the fact that demand for oil from China and India, but especially China, is higher this year does not mean that higher oil prices are virtually guaranteed. That’s because China’s economy is very export-oriented, and when consumer countries are in a recession or something like that, those exports will suffer.

Predictions China’s oil demand is still at record highs this year. OPEC said it expected demand from the world’s largest importer to add more than 700,000 bpd this year for a total of 15.56 million bpd. For its part, the IEA forecasts that growth in demand from China will push the oil market into a deficit in the second half of the year. But if a recession here or there dampens demand for anything coming from China, all bets are off.

Due to the fundamentals of oil, all price forecasts point to higher prices towards the end of the year. But the basis for these forecasts came before the bank failures and the Credit Suisse bailout.

Perhaps the baking panic will subside soon enough and everything, including the outlook for oil demand, will return to normal. Or maybe the banking panic is a harbinger of worse things to come – things that will affect demand for everything from crude oil to iPhones. Collectively known as a recession, these things could cause very different oil price forecasts later in the year.

By Irina Slav for

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