Goldman Sachs has recently extended the value target of its crude oil. The investment bank warned that the rising threat to supply the Middle East will lead to huge risk premiums in prices in the near future, even if the regional production is gradually returning online as expected
A TEAM OF COMMODITY ANALYSTS LED BY DAN STRUVEN INCREASED THEIR BRENT CRUDE TARGET FOR DECEMBER 2026 TO A BARREL OF 105 DOLLARS PER BARREL FROM THEIR PREVIOUS CALL OF $90. HE ALSO RAISED HIS WEST TEXAS INTERMEDIATE (WTI) ESTIMATE FOR THE SAME MONTH FROM $81 TO $94 BARREL. GIVEN THE 2027, GOLDMAN NOW SEES BRENT ON AN AVERAGE OF $88 INSTEAD OF $80, WHILE THE AVERAGE OF WTI IS EXPECTED TO RISE FROM $73 TO $78
Why did crude prices rise in October?
The sudden rise of about 27 dollars per barrel in the geopolitical risk premium tells about the fast crude rally of October, which delivered the spot brent futures to 118 dollars. Interestingly, Goldman explains that the real fair price of Brent remained in the range of $90 hardly in September and October. That’s because the global storage list remained largely stable, as the supply and demand naturally adjusted with changes
Traders are now estimating much more likely to spread conflicts after the US medium- term elections of November 3. According to the statistics of betting on the polymarket, the possibility of the current U.S.- Iran warfare is just 10% before the voting, but reaching about 50% by November 15, and reaching about 75% before the end of the year
Three scenarios keeping the energy desk on the edge
Goldman Strategists said that market players are tracking three possible military steps by US or Israel against Iran:
- Direct attack by targeting underground nuclear sites
- Attack on missile bases near the critical Hormuz Jaldmiroom
- Comprehensive bombardment while targeting Iran’s main energy features
The Bank indicated that the threat of accountable action against the widest Gulf Oil infrastructure by Iran and its regional partners is most in that third scenario
Now, the existing $27 price premium corresponds to the price that the merchants will put when the Middle East supply is reduced by 50 lakh barrels per day for six consecutive months. In addition, the contract prices for the Brent futures of December 2027 and December 2028 rise to suggest that the market is expected to remain for a long time of export problems in this area
To account these ongoing headaches, Goldman included a 1 million barrel- per- day disruption buffer in its 2027 balance sheet. He pointed to wide political friction around the world as well as wars in the Middle East and Ukraine. As the strategists have said, it is almost impossible to detect the exact time and location of physical supply disruptions
Where can the oil go further?
In the base scenario of Goldman, oil prices are actually expected to fall below the existing futures curve. This result assumes that geopolitical fears are gradually decreasing and the wells of the Persian Gulf continue to produce crude oil
Although the risks between high and lower prices now look more balanced, the strategists emphasized that the scales have still bent considerably upwards. If the production of the Gulf lasts below 3.5 million barrels per day from 2025 baseline, the Brent can easily reach 140 dollars per barrel and an average of $130 in 2027. On the other hand, if the oil output rises to 2.5 million barrels per day above the level of 2025 and there is no major disruption, the prices can fall back to a range of 60 dollars
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The main things for traders and energy investors of crude oil
- Further Higher Floors: Goldman Sax has decisively elevated its long- term brent and WTI price bands, pricing in structural supply risks that can keep crude oil high by 2027
- View the dates after the election: Market conditions point to the major friction risks that emerge after the U.S. medium term, making high- intensity windows for energy contracts from mid- November to December
- Wild asymmetric swing: Severe cuts in supply to the Persian Gulf can drop to the Brent $140, while peaceful supplies can drop prices from floods to $60, giving options and futures traders a huge range to plan