Goldman Sachs Sees Oil Hitting $120 a Barrel on Mideast Shipping Risks

Oil prices could surge to $120 a barrel if attacks on shipping in the Middle East continue to escalate, according to an upside scenario from analysts at Goldman Sachs Group Inc.

The Geopolitical Risk Premium

The investment bank's forecast, reported by Bloomberg on Monday, highlights the growing risk of broader and more intense disruptions amid an ongoing standoff between the U.S. and Iran over the Strait of Hormuz. Daan Struyven, Goldman’s co-head of global commodities research, told Bloomberg TV that recent developments are fueling the price risk.

According to the report, these developments include:

• Recent U.S. strikes on Iranian tankers.
• Iran's announcement of a new restricted zone near the critical waterway.
• A U.S. naval blockade of Iranian ports while escorting other vessels.

Goldman's analysis also includes a downside scenario, which would see Brent crude fall to $80 a barrel if exports from the region were to normalize, Struyven said, per Bloomberg.

Broader Market Impact

Ad

The heightened tensions have already pushed crude oil to its highest level since July. As of early Monday, Brent crude was trading at $97.55 a barrel, with West Texas Intermediate at $92.64.

The market impact extends beyond crude. The conflict, which has lasted more than six months, has driven up a wide range of energy prices. Natural gas and refined products have risen faster than crude, with diesel prices reportedly more than doubling so far this year.

Investor Positioning

Goldman Sachs advised that investors looking to hedge against geopolitical risk should consider long positions in global natural gas and refined-oil products, not just crude oil. Struyven explained that supply shocks in these specific markets are more severe than in crude.

He added that China is likely to remain a "stabilizing force" in the crude market by curbing imports as prices rise. However, according to the report, Struyven noted that Beijing is not playing a similar moderating role in the markets for natural gas or refined products.