Our base case for Q4 oil prices is about $20 higher than before the war: Goldman's Daan Struyven

Summary

• Daan Struyven frames current oil prices as a short-term "tug of war" between large, ongoing supply losses from the Iran war and market perceptions of disruption length based on political comments.
• The recent price decline reflects investors downgrading the probability of a sustained supply disruption following comments from U.S. policymakers.
• Flows through the Strait of Hormuz remain very low, down roughly 19 million barrels per day, but have been partly offset by increased redirection via pipeline flows.
• The immediate risk of critically low inventory levels is larger for regions that are big importers from the Middle East, especially Asia, though the global, fungible nature of oil markets should cause prices to converge over time.
• The current oil futures curve is close to Goldman's own forecasts, which assume a gradual normalization of Strait flows from mid-April onward.
• However, risks to that normalization timeline are "skewed towards delays," and risks to Goldman's price forecast are "skewed towards higher prices."
• The base case for Q4 oil prices is about $20 higher than before the war due to three factors: a large hit to commercial inventories, the need for restocking of Strategic Petroleum Reserves (SPR), and a lasting "security premium" to encourage supply diversification.
• Goldman's long-term view is that Brent should average around $75, and the recent rally in energy equities is consistent with that longer-term pricing.