Episode summary
How the US-Iran Deal Could Affect Oil Prices
Exchanges (Goldman Sachs)
· · Guests: Daan Struyven
Summary
Oil markets have already sold off from above $120 a barrel to the low $80s as the US and Iran move to end hostilities and reopen the Strait of Hormuz, but Daan Struyven said the market is still only pricing a relatively optimistic base case. He argued that the recovery in Middle Eastern flows is not assured, because exports depend on whether Iran wants higher flows, whether shippers can move without strikes, and whether the strait fully reopens and stays open.
Struyven said Goldman Sachs expects Brent to average $75 next year, with $80 by the end of this year and $75 in 2027, while WTI is forecast at $74 this year and $70 in 2027. He said inventories remain low and a disruption-risk premium should keep prices somewhat elevated relative to pre-war levels.
On demand, he said much of the recent decline should unwind, with about 90% of the 5 million barrels per day of lost demand returning by 2027. Even so, he sees some lasting weakness from higher EV adoption, especially in China, and warned that the bigger risk to oil prices is still upside if Strait traffic fails to normalize.
Key takeaways
- Daan Struyven said Goldman Sachs sees Brent averaging $75 in 2027, with $80 by the end of this year and WTI at $74 this year.
- Struyven said the market has largely priced in a recovery in Middle Eastern supply, but the Strait of Hormuz may not fully reopen or stay open.
- He said low inventories and a disruption-risk premium should keep oil prices elevated relative to pre-war levels.
- Struyven expects about 90% of the 5 million barrels per day of demand losses to unwind by 2027, but he still sees some lasting demand damage.
- He said the bigger risk is upside: in a slow-reopening scenario, Brent could exceed $130 per barrel by year end.
Notable quotes
“we lost roughly 14 percent of global production from the Middle East”
“We see Brent averaging $75 next year. But I would say that the market has largely priced in the recovery inflows and production from the Middle East that we expect”
“it's not a given that the strait will reopen fully. It's not a given that even if it reopens fully, that it remains open”
“We expect about 90% of the 5 million barrels per day of demand losses to be bouncing back by 2027”
How the episode opens
The US and Iran have reached a deal to end the conflict and reopen the Strait of Hormuz. What could that mean for energy markets and for oil prices in particular? I'm Allison Nathan and this is Goldman Sachs Exchanges.
Today, I'm joined once again by Daan Struyven, co-head of global commodities research in Goldman Sachs Research. Daan, I said last time we spoke that you'd be back again soon. And here you are.
Accurate prediction, which is challenging in this environment. Absolutely. So, Daan, maybe you could start by just summarizing the impact this conflict has had on oil markets.
And of course, in particular, the significance of this interim deal between the US and Iran. So, oil prices have sold off pretty significantly from over $120 with Brent now essentially in the low 80s. In the face of the largest oil supply shock ever, we lost roughly 14 percent of global production from the Middle East.
Why are prices down so significantly? I think the market is pricing in a relatively optimistic base case for the recovery of Middle Eastern supply in line with our base case. We assume flows through the strait to start to recover.
And exports from the region go back to normal levels by the end of July. And second, we have seen remarkable flexibility in the global oil market outside of the Middle East with a roughly 5 percent reduction in demand. And with pretty strong supply outside of the Middle East.
Right. But just to be clear, obviously, prices were on the decline from the peak which happened in April. But we've seen a big sell-off since these headlines, which has given the market more optimism that we're actually going to see the restart of flows.
But talk to us a little bit about what that could look like.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- us iran deal
- oil prices
- brent forecast
- strait of hormuz
- oil inventories
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “How the US-Iran Deal Could Affect Oil Prices” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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