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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Goldman Sachs: The Bullish Case For Oil

Oil Rig

The rapidly heating up situation in Syria has pushed Brent crude prices to US$72 a barrel, something that Goldman Sachs had predicted on Thursday. The investment bank’s stance on commodities in general is very upbeat because of the Middle East situation as well as the latest round of U.S. sanctions against Russia.

“With low cross-asset correlations, increasing inflationary risks, a positive carry and the potential for oil supply disruptions in the Middle East, the strategic case for owning commodities has rarely been stronger,” Goldman analysts said, reiterating their “overweight” stance on commodities.

It seems the latest developments in Syria are such a strong tailwind for oil prices that even the re-imposition of U.S. sanctions against Iran is unlikely to have a major impact on oil markets immediately. However, if Iranian production does decline following the reintroduction of sanctions, this could push oil prices up by another US$7 a barrel.

U.S. President Donald Trump has given a deadline to the European signatories of the nuclear deal that resulted in the lifting of economic sanctions against Tehran two years ago, to “fix the terrible flaws” in the deal.

Syria is not the only hot spot that is driving oil prices higher up, but it is certainly the hottest. A year ago, the U.S. carried out missile strikes against Syrian army targets in response to allegations of a chemical attack. Now the saber rattling has begun again following reports of another chemical attack. However, while Russia last year refrained from retaliating to U.S. strikes, this time it has made clear it will not sit idly by.

Some geopolitical experts believe that a wider war will be avoided as neither of the sides wants it, but the situation is certainly tense. Events in Yemen, where the Houthi rebels are reportedly firing missiles to Saudi Arabia, are only adding to these geopolitical tensions.

By Irina Slav for Oilprice.com

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  • paul dickey on April 13 2018 said:
    The reason oil prices will rise because electric cars are hazardous waste and an insufficient amount of capital investment is being invested to supply oil in the future.

    The other thing is that the cost to lift a barrel will continue to rise until the next technological breakthrough.

    Low oil = low inflation = low growth = low income.

    Oil replaces human labor. When oil is low priced, human labor is worth far less than when oil prices are high.
  • Mamdouh G Salameh on April 13 2018 said:
    The bullish sentiments for oil are based first and foremost on a robust economy, an accelerating global demand for oil and also a virtual re-balancing of the oil market.

    Geopolitical tension around the world could add a few dollars to the oil prices but only if the market is balanced. A weak demand for oil or a glut will nullify the impact of geopolitics on oil prices as was the case during the period 2014-2017.

    The oil market trusts OPEC’s and Russia’s commitment to the OPEC/non-OPEC production cut agreement and also trusts Saudi Arabia and Russia when they confirm that not only the agreement is here to stay but it will continue in one way or another for many years to come.

    The oil market also knows that US withdrawal from the Iran nuclear deal will not cost Iran a single barrel of oil exports. Iran will accept the petro-yuan as payment for its oil exports thus bypassing the petrodollar. This will virtually nullify the impact of any new US sanctions against Iran.

    One important factor is that the oil market is also ignoring the bearish news of rising US oil production because it no longer believes in EIA’s claims.

    Based on the prospects for the global economy in 2018 and 2019, I would say the global oil market could be heading to $75 a barrel this year rising to $80 or even higher in 2019.

    However, all projections about oil prices and the global economy could turn to ashes if President Trump's reckless sabre rattling in Syria starts WW III.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Mark Battey on April 14 2018 said:
    The Atlantic ocean circulation is slowing and this is likely to have disastrous effects in places like New York and London soon. They'll be desperate to do something. It would have been much wiser to act when Gore was on about it.
  • the masked avenger on April 18 2018 said:
    Paul, high oil, tanked economy. Electric cars....the future. High oil drives high inflation . .driveseconomic decline. High oil never has and never will drive a good economy. Oil is the economies enemy

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