Goldman Sachs Warns of Oil Price Surge from Iranian Losses

Petroleum Price

• Crude oil futures traded lower on Monday morning after witnessing their largest weekly gains last week due to escalating tensions in West Asia.

• December Brent oil futures were at $77.75, down by 0.38 percent, and November crude oil futures on WTI (West Texas Intermediate) were at $74.16, down by 0.30 percent.

• October crude oil futures were trading at ₹6,244 on the Multi Commodity Exchange (MCX) during the initial hour of trading on Monday, against the previous close of ₹6,339, down by 1.50 percent, while November futures were trading at ₹6,205 against the previous close of ₹6,288, down by 1.32 percent.

Petroleum Demand and Supply

• Last week, Brent crude oil futures gained over 8 percent on a weekly basis, and WTI futures gained 9.1 percent. The escalation of conflicts in West Asia was one of the reasons for this. Iran launched a missile attack on Israel last week.

• Following this, Israel stated it would retaliate for this attack, creating apprehensions in the market over possible supply disruptions from the West Asia region, as Iran is one of the major producers of crude oil.

• However, U.S. President Joe Biden discouraged Israel from attacking Iran’s oil facilities, which helped ease concerns over possible supply disruptions.

• Additionally, spare crude oil production capacity in the OPEC (Organization of the Petroleum Exporting Countries) group alleviated worries about potential supply shortages in the market. Libya, which is a member of OPEC, also restarted crude oil production last week. All these factors boosted market sentiments regarding a smooth supply situation in the coming days.

Petroleum News

• Crude oil prices surged by 2.89 percent to settle at ₹6,339, as fears of a wider Middle East conflict raised concerns about potential disruptions in global crude supplies. This escalation followed U.S. President Joe Biden’s statement regarding discussions on an Israeli attack on Iranian oil facilities, sparking worries that Israel might target Iranian oil infrastructure.

• This could provoke retaliation from Iran, exacerbating tensions in the oil market. Although global crude supplies have not yet been impacted, the possibility of disruption continues to fuel investor concerns.

• Meanwhile, OPEC+ assured the market that it has enough spare capacity to offset any potential loss of Iranian supply. Kazakhstan's announcement of its largest oil output cuts in October, due to scheduled maintenance at the Kashagan field, also contributed to tightening supply fears.

• Additionally, U.S. crude oil inventories unexpectedly rose by 3.889 million barrels, surpassing expectations of a 1.3 million barrel decline. Crude stocks at Cushing, Oklahoma, increased by 0.840 million barrels, while gasoline inventories rose by 1.119 million barrels, further deviating from forecasts. Meanwhile, China's crude oil imports in August fell by 7 percent year-on-year, although they were up from the previous month.

• Crude oil prices rose as investors feared a wider Middle East conflict could disrupt crude flows. On the demand side, signs of a strong U.S. economy have supported expectations for fuel demand. Libya’s oil production has resumed across all oilfields and export terminals, reinforcing the case for ample supply.

Expert Opinion

• Goldman Sachs anticipates that if Iranian oil production drops by 1 million barrels per day, prices could rise by approximately $20 per barrel next year, assuming OPEC+ does not increase production to offset the losses.
• In a scenario of full-scale conflict, Brent crude prices could surpass $100 per barrel, with significant disruptions potentially pushing prices to $150 per barrel or more.
• Analysts emphasize that while the likelihood of a full-scale war is deemed low, the risk of miscalculations or escalations is elevated, which could disrupt oil supplies, particularly through the strategically vital Strait of Hormuz.