Goldman Sachs Remains Bullish On Oil Prices

Goldman Sachs continues to hold a bullish view on oil despite the ongoing market sell-off, reiterating in a note its stance that “the skew to prices from here is squarely skewed to the upside.”

Commodity

Oil

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Goldman Sachs strategists, including Jeffrey Currie
and Damien Courvalin, stress-tested their bullish view and found that despite
growing concerns over oil fundamentals, both for higher supply and weaker
demand, Brent’s fair value would remain above current market forwards in the
second half of 2022 and in 2023.

With low inventories and a potential Saudi/UAE ramp-up
in production in the region of 500,000 barrels per day (bpd), which will
further deplete “record low spare capacity,” the risks are firmly skewed to the
upside, Goldman Sachs’ analysts wrote in the note.

Under an adverse scenario, Brent’s fair value would be
$120 in the second half of 2022 and $110 in 2023, down from Goldman’s forecasts
of $135 and $125 a barrel, respectively, the bank’s strategists noted.

Even the worst-case scenario would still imply a Brent
fair value of $105 for H2 2022 and $90 a barrel in 2023, also above market forwards.

“As a result, we reiterate our bullish oil price view
following the recent sell-off,” Goldman Sachs said.

Early on Thursday, oil prices were down by 4% to
levels last seen in February, just before the Russian invasion of Ukraine.

At the end of last month, Jeffrey Currie, global head
of commodities research at Goldman Sachs, said that the upside risk in crude
oil and refined products “is tremendously high right now.” The recent pullback
in oil prices could be a buying opportunity because prices are set to go higher
from here this summer, according to the Wall Street bank.

Last week, Goldman’s Courvalin told CNBC that oil
could still hit $140 per barrel.

“$140 is still our base case because, unlike equity,
which are anticipatory assets, commodities need to solve for today’s mismatched
supply and demand,” Courvalin said.

By Michael Kern / Jul 14, 2022, 5:30 PM