Goldman Sachs Predicts Resilient Oil Prices Despite Recessionary Fears
In a recent note, Goldman Sachs analysts explained that the recent 6% drop in Brent prices is primarily due to macroeconomic concerns about a potential recession. However, they are confident that the $75 price floor will hold, supported by strong oil demand, limited recession risk, and potential recovery in speculative positioning.
Macro selloff analysis
The analysts at Goldman Sachs point out that the recent decline in oil prices is driven more by macroeconomic fears rather than fundamental factors in the oil market. Despite these concerns, recent US economic data and oil demand trends suggest resilience.
Resilient oil demand
Oil demand remains robust in Western economies and solid in India, with above-trend growth in US gasoline demand, European oil product consumption, and jet fuel use in OECD countries. This strong demand is a positive indicator for the future stability of oil prices.
Limited recession risk
While there is an increase in US recession risk, Goldman Sachs believes that the overall risk is limited. They have raised their 12-month recession odds to 25%, citing positive economic data, lack of financial imbalances, and potential Fed cuts as factors that could mitigate the risk.
Potential recovery in speculative positioning
Goldman Sachs sees room for speculative positioning in oil markets to recover, as current levels are low. They expect positive macroeconomic data to support this recovery, including lower initial jobless claims in the US and growth in employment and China's GDP.
Downside Risks to the $75-90 Range
Despite their confidence in the $75 price floor, Goldman Sachs acknowledges several downside risks to their price range, including recession risk, potential trade tariffs, elevated spare capacity, and China demand risks. These factors could lead to a decline in oil prices in the coming years.
Strategic shift to gold
Given the increased downside risks to oil prices, Goldman Sachs recommends long positions in gold as a hedge for portfolios. They maintain a bullish price target of $2,700 for gold in 2025, highlighting its benefits as a protective asset against geopolitical shocks, trade tariffs, and financial sanctions.
In conclusion, Goldman Sachs remains optimistic about the resilience of oil prices in the face of recessionary fears. While there are downside risks, including trade tensions and weak demand forecasts, they believe that strategic investments in gold could provide stability and hedging value for investors.