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Goldman: Oil Prices To Hit $82.50 By The Summer

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Increased geopolitical tensions in the Middle East, plunging Venezuelan production, and now the U.S. withdrawal from the Iran nuclear deal could push Brent Crude prices to $82.50 a barrel by summer, Goldman Sachs said Wednesday.

On Tuesday, U.S. President Donald Trump said that the United States would withdraw from “an unacceptable Iran deal”, re-imposing sanctions on Tehran that “target critical sectors of Iran’s economy, such as its energy, petrochemical, and financial sectors.”

The U.S. will target Iran’s crude oil sales, and sanctions that were lifted under the deal will be re-imposed following a 180-day wind-down period, the U.S. Treasury said.

The return of the sanctions could initially reduce by 500,000 bpd Iran’s current crude oil production of 3.8 million bpd, Goldman Sachs said in a note today, as carried by Reuters.

A loss of 500,000 bpd of Iranian crude oil supply would push up oil prices by around $6.20 a barrel, according to Goldman Sachs.

“Such elevated oil geopolitical risks exacerbate the upside risks to Brent forecasts and reinforce our view that oil price volatility will continue to increase,” the investment bank’s analysts wrote.

At 11:20 a.m. EDT on Wednesday, both WTI and Brent prices were surging nearly 3 percent, with Brent touching $77 a barrel, following President Trump’s withdrawal from the Iran deal and EIA’s weekly inventory report showing draws across the board.

Commenting on the impact of the U.S. withdrawal from the Iran deal, Sukrit Vijayakar, director of energy consultancy Trifecta, told Reuters on Wednesday:

“Iran’s exports of oil to Asia and Europe will almost certainly decline later this year and into 2019 as some nations seek alternatives in order to avoid trouble with Washington and as sanctions start to bite.”

Several Asian refiners told Reuters that they were already on the lookout for alternatives to Iranian crude oil deliveries.

By Tsvetana Paraskova for Oilprice.com

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  • John Brown on May 09 2018 said:
    Goldman has been singing that song all year. My best is they've got some bets in the market that pay off big at about $80 a barrel, and they are doing their part to push the price of oil to the $80 plus range which is where Saudi Arabia also wants it. Never mind that there is plenty of oil, and an ocean of idle production capacity now sitting around, and U.S. shale oil and gas is in a gold rush, and will exceed all estimates and forecasts. I'd normally be outraged over the manipulation of the price of oil to over $80 when there is no reason for it to be over $40, but this time around I'm enjoying the spectacle. Oil in the $60s much less $80s or higher is enough to incent massive new production, and not just in the USA. It also gives renewables an open window to gain market share even as they rapidly lower their cost. Saudi Arabia/OPEC/Russia/Goldman are playing a game that is going to bite them much sooner than they expect. The days when there were no cost effective alternatives and people just had to pay are over, or almost over, and $80 oil will bring that future faster than anything else I know!
  • The masked avenger on May 09 2018 said:
    I can see it now, the resession starting, prices rising and a bunch of oil guys running around with woody's. High oil = low,economy, always has... always will. Oil is 40 bucks a barrel too high and gas I a buck twenty to high. Let the inflation and oil cause greed begin. Pathetic.
  • Jazzy Koree on May 09 2018 said:
    Didn’t Barclays Predict that oil would collapse in 3rd qtr 2018 ? Who is to be believed ?
  • Mamdouh G Salameh on May 09 2018 said:
    With the global oil market fundamentals as strong as they are now, it is a very safe bet by Goldman Sachs to project that oil prices could rise to $82.5 a barrel by Summer particularly if we add the current geopolitical concerns.

    However, I disagree with Golden Sachs that Iran could lose some 500,000 barrels a day (b/d) initially as a result of US sanctions. Iran will not lose a single barrel of oil exports. More than 75% of Iran’s oil exports go to China and the Asia-Pacific region while the remaining 25% go mostly to the European Union (EU). China, India and other Asia-Pacific region countries as well as the EU are not going to comply with US sanctions and reduce their imports of Iranian crude.

    While Japan and South Korea might comply with US sanctions and shun Iranian crude, this will be more than offset by China, India and other Asia-Pacific countries as well as the EU increasing their imports of Iranian crude.

    I also disagree with Goldman Sachs that a loss of 500,000 b/d of Iran’s oil supply could push up oil prices by around $6.20 a barrel. Libya’s production declined by almost 1.2 million barrels a day (mbd) in 2011 and still oil prices did not rise then by more than $2-$3 a barrel. Goldman Sachs may argue that in 2011 there was no OPEC/non-OPEC production cut deal. And I will retort by saying that in 2018 US oil output is more than 10.5 mbd if claims by the EIA are to be believed.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Frank on May 09 2018 said:
    Of course it was Goldman who met with OPEC last March and designed the plan to limit Saudi exports to the US in an effort to manipulate our commercial supplies and eliminate the troublesome record glut.

    Here we are a year later and US supplies are still at 434M barrels, a level not seen any time in history prior to 2015. There is no rational reason WTI is above $45, just market manipulation and collusion.
  • David Jones on May 10 2018 said:
    Likely a safe bet. The real question to ask is, what might this president have planned for Iran in the future? It seems pointless to rip up the deal in order to stop Iran from obtaining a nuclear weapon when in fact this very deal is preventing them from acquiring such weapons. What it looks like is a preemptive move to provide leeway for a military assault down the line. Whether such an assault actually happens is questionable but even just the idea of it may destabilize the situation and keep upward pressure on prices. Iran will probably restart their nuclear ambitions if the current president of the USA engages in rhetoric escapades as he has done in the past. Of course, this could all be a charade intended to scare markets into keeping higher oil prices so that the USA can continue increasing their exports without undoing recent price gains.
  • Dan on May 10 2018 said:
    All claim oil should be priced carefully at supply, demand. Yesterday I bought a two inch bolt that cost .89 USD. It used to cost around .15. There were plenty of bolts in the box, I just bought one and no one was waiting behind me to buy another. Somewhere the supplier and merchant came up with .89 so that both could make a profit. Certainly a full box of bolts enough to supply the area for years must have been overpriced I thought after reading oil is way overpriced.

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