By
Bhushan Akolkar
April 12th, 2024
Goldman Sachs says that it cut its oil forecast by $10 due to some macroeconomic factors regarding China and Russia.
Goldman Sachs recently cut back on its oil forecast for the fourth quarter of 2022 due to a number of reasons. These include increasing Covid outbreaks in China and a lack of clarity regarding the intent to cap Russian oil prices by the Group of Seven (G7) nations. A group of Goldman Sachs economists said:
“The market is right to be anxious about forward fundamentals due to significant Covid cases in China and a lack of clarity on the implementation of the G7′s price cap.”
The new Q4 oil forecast by Goldman Sachs now stands at $100 per barrel after a $10 reduction.
Goldman Sachs Oil Forecast Influenced by Anticipated Reduced Chinese Import
Over the weekend, China recorded three Covid deaths, the country’s first deaths since May. In light of this, Goldman is anticipating more lockdowns in the East Asian nation, which is also the world’s top oil importer. Due to the projected adverse impact of said lockdowns on oil demand, Goldman says that this equates to a deficit of 2 million barrels per day. The banking giant also directly likens this to oil production cuts imposed by OPEC+ last month.
Following rising Covid concerns in China, the country’s capital city Beijing tightened measures in the last three days. A note from the Goldman team of economists touched on this development, saying:
“China’s Covid cases are at Apr-22 highs, yet, the new policy reaction function is unknown … we lower our expectations for China demand by 1.2 [million barrels per day] for the quarter (to 14.0 mb/d), anticipating further lockdowns from here.”
In addition, the Goldman economists also stated that the current crude demand in the East Asian country falls below Goldman’s expectations for October to November. According to the banking giant’s analytical team, this shortfall is around 800,000 barrels a day.
Russian Supply Factor
Russia’s higher-than-anticipated production volumes and oil exports also influence Goldman’s downward oil revision. This increase in production and export capacity occurs merely two weeks before the European Union ban takes effect early next month. Summarily addressing the development from an investor’s perspective, Goldman notes that “investors have been left disappointed by higher-than-anticipated production and export flows from Russia. This is despite just two weeks remaining before the EU embargo takes effect on crude, alongside the G-7 price cap, for which more details are set to be announced next week.”
In May, EU leaders agreed to ban 90% of Russian crude imports by the end of the year as further punitive measures against the Eastern European country. This embargo forms part of the Union’s sixth sanctions package on Russia for invading Ukraine on February 24th. However, there are concerns that the ban would further steepen an already tight energy market that has contributed to soaring energy prices.