Demand destruction resulting from higher prices will somewhat soften the blow from physically tighter oil markets, Goldman Sachs commodity analysts said in a note.
“We see significant upside price risks from potentially more persistent Mideast supply losses but also meaningful price downside from weaker demand,” the team said, as quoted by Bloomberg. “Actual end-use oil demand may have fallen more in response to higher prices than expected.”
The investment bank’s analysts estimate that the extent of demand destruction may have reached 2 million barrels daily in May, based on oil sales figures for China and Western Europe, the report said.
The effect of this demand destruction would in turn pressure prices, the Goldman team also said, seeing a $10 downside risk for Brent crude in the fourth quarter of this year, when their base-case price scenario is $90 per barrel.
In a separate update, Energy Aspects last week said it expected Chinese oil imports to fall to the lowest rate since the 2020 pandemic lockdowns, which would also have a bearish impact on international prices.
The international benchmark closed at its lowest in six weeks last Friday, pressured by resurgent optimism about a ceasefire extension deal between the U.S. and Iran despite renewed mutual attacks. At the time of writing, Brent crude was trading at $92.87 per barrel, while West Texas Intermediate was trading at $89.47 per barrel, both up in the latest reports about the Persian Gulf, which said the U.S. had struck Iran again, and Iran had retaliated with its own strikes on U.S. military bases in the Gulf.
Benchmark oil price levels right now appear to conflict with industry warnings of looming shortages, the latest coming from a senior VP of Exxon and the chief executive of Chevron. Both see the shortages becoming palpable within weeks.
By Irina Slav for Oilprice.com
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