Goldman Sachs has reversed its earlier position that crude oil prices will hit $100/b by the second half of this year.
Last week, oil prices booked their worst week since the start of the year, dropping off a cliff on renewed fears about the global economy after the collapse of two big U.S. banks and the near-collapse of Credit Suisse.
While most price forecasts for the short term have been bullish because of pro-bullish oil fundamentals, now things are beginning to change. Tight supply, cited by virtually all forecasters as the main reason for oil price rise predictions, is giving way to fears of an economic slowdown that would dent demand and push prices lower.
Goldman Sachs, thus has already revised its oil price forecast for the rest of the year. Previously expecting Brent to hit $100 in the second half, now the investment bank expects the international benchmark to only rise to $94 per barrel in the coming 12 months.
For 2024, Goldman analysts see Brent crude at $97 per barrel.
“Oil prices have plunged despite the China demand boom given banking stress, recession fears, and an exodus of investor flows,” Goldman said in a note last week, as quoted by Bloomberg. “Historically, after such scarring events, positioning and prices recover only gradually, especially long-dated prices.”
Indeed, as far as events go, this one left a serious scar. Brent crude went from over $80 per barrel to less than $75 per barrel, and West Texas Intermediate slipped down close to $65 per barrel. And this happened while authoritative forecasters such as the IEA and OPEC recently said they expect stronger demand growth than supply growth.
According to a recent CNBC report, 41 percent of Americans are preparing for a recession and with a good reason. Despite seemingly endless media debates about whether the world’s largest economy is in a recession already, about to enter a recession, or will manage to avoid a recession, forecasts are not looking optimistic.
“What you’re really seeing is a significant tightening of financial conditions. What the markets are saying is this increases risks of a recession and rightfully so,” Jim Caron, head of macro strategy for global fixed income at Morgan Stanley Investment Management, told CNBC earlier this month.