The world could be facing one of the greatest energy shocks of all time, according to Goldman Sachs
“The uncertainty over how this conflict and oil shortages will be resolved is unprecedented,” Goldman Sachs strategists wrote in a note to clients.
If other Western countries “en masse” follow the US lead and ban Russian oil, crude prices could skyrocket to as high as $240 a barrel this summer, Rystad Energy warned in a report on Wednesday.
Such a move would create a “hole in the market of 4.3 million barrels per day that simply cannot be quickly replaced by other sources of supply,” Rystad said.
“Given Russia’s key role in global energy supply, the global economy could soon face one of the greatest energy supply shocks of all time,” Goldman Sachs said in the report. Monday evening, adding that the scale of the shock is “potentially huge”.
The biggest supply shock since 1990?
The Russian-Ukrainian crisis could knock out about 3 million barrels a day of maritime exports of Russian oil and petroleum products, Goldman Sachs said. If sustained, the bank said, it would represent the fifth-largest month-long disruption since World War II, behind only the 1973 Arab oil embargo, the Iranian revolution in 1978, the Iran-Iraq war in 1980 and the Iraq-Kuwait war. in 1990.
The problem is that there is no easy solution to compensate for the loss of Russian oil.
Even after the emergency release of oil reserves, increased oil production by OPEC and the potential lifting of sanctions against Iran and Venezuela, Goldman Sachs said the world oil market is not will have “no buffer”. This would require “demand destruction through higher prices”, the bank warned.
In other words, the world would be forced to use less oil. This in turn could hurt the economy if it means less driving, less flying and less oil used to make products like plastic.
Goldman Sachs raised its Brent price forecast to $135 from $98 previously. The bank now sees Brent trading at $115 next year, up from $105 previously.
“The range of possible outcomes remains extreme given the threat that a spike in oil prices poses to the global economy,” Goldman Sachs strategists wrote.
What about American oil companies?
US oil production is expected to increase significantly in response to rising prices. However, this rebound in domestic production has so far been slowed in part by oil companies’ recent drive to return cash to shareholders.
“Shale supply response would still remain modest initially, due to drilling times, still-cautious producers and a stretched services sector,” Goldman Sachs said, suggesting it should not be counted on. American drillers to come to the rescue.
U.S. oil production is expected to climb to an average of 12 million barrels a day this year, the U.S. Energy Information Administration said on Tuesday. This is in line with the EIA’s previous forecast in February, before oil prices hit the highest levels since 2008.
However, the EIA has significantly raised its forecast for U.S. oil production in 2023, calling for an average of 13 million barrels, up from its previous forecast of 12.6 million. The annual record for US oil production was set in 2019, when 12.3 million barrels were produced daily.