Goldman says demanding destruction is the only thing that can hold oil back
Demand destruction is the only thing that can keep oil from soaring after US and European allies dropped additional brakes on Russia following its invasion of Ukraine, according to Goldman Sachs Group Inc.
The bank raised its one-month forecast for Brent to $115 a barrel from $95, with significant upside risks in the event of further escalation or longer disruptions.
Western sanctions will tighten significantly after news that some Russian banks will be banned from the SWIFT international payment system and the country’s central bank reserves will be targeted, analysts including Damien Courvalin and Jeff Currie said in a note. dated February 27. -outflows likely still allow energy and food exchanges, barriers created for payments should exacerbate the already visible shock to commodity supply, they said.
“Commodity markets must reflect not only these difficulties in paying for Russian exports but, with little sanction, the risk that Russian commodities will eventually fall under Western restrictions,” the analysts said. This is an outcome that is no longer ruled out by the United States, they added.
The short-term oil price hike is $110 to $120 if 2 to 4 million barrels a day of demand destruction is needed to offset a proportional one-month loss in Russian exports, Goldman said. The price-induced shale supply response would no longer be an appropriate rebalancing mechanism for such a large potential shock, with Russia exporting around 7.3 million barrels per day of crude oil and petroleum products transported by sea. , did he declare.
The only potential near-term supply response is expected to come from the OPEC+ alliance, which is expected to meet later this week, according to Goldman. An increase in production from Saudi Arabia and the United Arab Emirates, as well as a lifting of US sanctions on Iran could increase daily global supplies by 2 million barrels in the coming months, with a release of reserves internationally coordinated helping to bridge the gap, he mentioned. But that would come at the expense of a depletion of spare capacity, pushing prices higher, analysts said.