Goldman Sachs group has said that an actual disruption to global crude supplies is needed to keep prices at current levels, even though flare-up in U.S.-Iran tension may be keeping oil elevated.
Price risks for Brent, which has surged about 6 per cent since the U.S. strike killed a top Iranian general, are skewed to the downside in the coming weeks without a major supply disruption, Goldman said in a note dated January 6.
Oil was already trading above the bank’s fundamental fair value of $63 a barrel prior to the attack, buoyed by an “over-enthusiastic December risk-on rally” despite limited evidence of an acceleration in global growth, they said.
“It is not a given that any potential retaliation by Iran would target oil producing assets,” Goldman analysts including Jeff Currie said.
“The recent incident at the U.S. embassy in Iraq occurred while there was no disruption to neighboring oil fields.”
Brent rallied above $70 a barrel and New York crude edged closer to $65 on Monday as the U.S. warned that there’s a “heightened risk” of missile attacks near military bases and energy facilities in Saudi Arabia, while Iran stated it no longer considers itself bound by the 2015 nuclear pact.
The rhetoric turned even more hostile after President Trump warned Iran of major U.S. retaliation “in a disproportionate manner”, and threatened heavy sanctions on its ally Iraq after its parliament voted to expel American troops from the country in response to the Baghdad attack.
The September strike on key oil producing facilities in Saudi Arabia indicated that the market has significant supply flexibility, according to Goldman. There is only “moderate upside” from current levels, even if an attack on oil assets actually occur, the bank said.