Investing.com -- Goldman Sachs raised its crude oil price forecasts, saying substantial downside risks to Middle East supply will sustain a large near-term risk premium despite a recovery in regional output that is proceeding as expected.
Strategists led by Daan Struyven lifted their December 2026 Brent forecast to $105 a barrel from $90, and their West Texas Intermediate forecast to $94 from $81. The 2027 average forecasts rose to $88 for Brent from $80, and to $78 for WTI from $73.
A jump in the risk premium to around $27 a barrel "now explains most of October's crude price rally," strategists said, with spot Brent futures reaching $118. Goldman estimates Brent's fair value was little changed in September and October, in the $90s, because global inventories, its main driver, were roughly flat as adaptation rebalanced output and consumption.
The market is now assigning more weight to escalation after the Nov. 3 U.S. midterms, the strategists said. The Polymarket-implied probability that the U.S.-Iran ceasefire ends due to escalation rises from 10% before the midterms to about 50% by Nov. 15 and about 75% by year-end.
Strategists said market participants are focused on three possible U.S. or Israeli actions against Iran: strikes on underground nuclear facilities, strikes on missile sites near the Strait of Hormuz, and broader strikes on Iran's energy infrastructure. The risk of Iran and its allies hitting Gulf oil infrastructure is likely highest in the third scenario, they noted.
The $27 premium is consistent with the market pricing a 5 million barrel-a-day drop in Middle East output lasting six months, according to Goldman Sachs. Rising prices for December 2027 and December 2028 Brent futures suggest markets also see a risk of persistent weakness in regional exports.
Goldman added a 1 million barrel-a-day global supply disruption allowance for 2027, citing the Middle East and Russia-Ukraine conflicts and broader geopolitical fragmentation.
"The timing and location of disruptions" is nearly impossible to predict, the strategists wrote.
Their base case still sees prices falling below the forwards, assuming the risk premium moderates and Persian Gulf output keeps recovering.
Risks are now "more symmetric" but still tilt to the upside, they said. Brent could reach $140 and average about $130 in 2027 if Gulf output stays 3.5 million barrels a day below its 2025 average.
On the flip side, it could fall into the $60s if output rises 2.5 million barrels a day above 2025 levels and the assumed disruption doesn't occur.
Original Article
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