Consumers desperate for relief from the scourge of sky-high gasoline prices won’t be getting it anytime soon — at least, if the latest forecast from commodities analysts at Goldman Sachs led by Jeff Currie is on track.
In an update to their outlook for oil prices over the next 12 to 18 months, Goldman’s team warned that they now expect oil prices – measured by the international crude benchmark Brent BRN00,
– to rise to almost 140 dollars a barrel this summer.
But for U.S. consumers, oil will trade further at $160 a barrel as limited capacity at refineries that process crude into petroleum products like gasoline and jet fuel continues to struggle to ramp up processing capacity fast enough to satisfy growing demand.
The price of oil has already jumped more than 50% so far this year, pushing the average U.S. gasoline price to a record close to $5 a gallon, according to AAA. On Tuesday, futures for Brent and WTI CL.1 crude,
— the international and U.S. crude oil benchmarks — were trading near $120 a barrel.
And although the longest global oil supply shortfall on record ended in April after nearly two years, the Goldman team expects a resurgence in Chinese demand to more than offset the surprising durability of Russian crude exports.
“The structural oil deficit therefore remains unresolved, with in fact an even more tense situation
oil market through April than we had anticipated. Supply remains inelastic
higher prices,” the Goldman team wrote.
Major oil producers have limited capacity to increase production further in the near term – and those with spare capacity are likely to be reluctant to use it fully due to the lack of exemptions from OPEC+ drilling quotas.
While OPEC+ agreed at its June meeting to increase production, Currie writes that members’ ability to aggressively ramp up drilling faces several challenges. The first is that drilling activity has stalled at half its level since the first quarter of 2020 for the past 18 months, and any increase in production would likely take months to implement.
Another is the lack of an exemption for Russia from its OPEC+ quota at the June meeting.
Meet. According to the Goldman team, this would suggest that the few OPEC+ members who have spare capacity will not be allowed to offset the impending jump in demand from China. Goldman illustrated its outlook for global oil inventories in the chart below.
As MarketWatch reported earlier this month, the lack of sufficient spare capacity represents a binding constraint for OPEC+ members trying to fill the void as Europe turns away from Russian crude.
The Goldman team recommended a handful of trades for clients interested in betting on a continued rise in energy prices, including buying GAS00 diesel futures,
will expire in December 2022, and Brent futures will expire in December 2023 BRNZ23,
As a “corollary” to these recommended trades, the Goldman team also said it expects energy stocks to continue to outperform.