Seeing some modest upside risk to oil prices from here, says Goldman Sachs’ Daan Struyven

Seeing some modest upside risk to oil prices from here, says Goldman Sachs’ Daan Struyven

all right oil prices rebounding slightly this morning after yesterday’s steep decline you can see right now WTI is up by about 1.3% back to 6827 Brent said 7235 for more on what’s been happening with oil prices and what you can expect next we want to bring in Don St striven who is Goldman Sachs co-head of global Commodities research and I’m sorry it’s styan uh don let’s talk a little bit about what happened yesterday we saw Israel Counter-Strike on Iran it did not include some of those oil facilities um that that had been anticipated maybe what drove prices up if if U is this a re a good reflection of where you think prices should be at this point yeah thanks for having me so I think indeed the the sharp sell off yesterday which was actually the biggest daily move since 2022 uh really reflected that oil assets and nuclear assets were were spared that the US got a advanced notification and that the response from Iran Su Supreme leader was quite uh quite measured uh from here we see some modest upside risk to op prices we have brand uh in the high 70s mid to high 70s for the remainder risk you think prices come down from here uh in the short term we think the most likely direction of travel for oil prices is higher uh number one valuation and positioning are both in the bottom 10% of the historical distribution in sharp contrast with equities or or credit for that matter second that these very uh you know fairly low price levels compared to fundamentals we think sort of $8 per barrel too cheap relative to the level of inventories we see demand from the USS spr from Airlines who buy cheaper oil uh in advance uh and finally at this point the geopolitical risk premium uh is very very small so I think the risk are in the short term skewed somewhat to the upside that said looking out further the market is already very focused on the risks of over Supply uh in 2025 so so let let me talk through and take the other side of some of those arguments you just wrote up first of all geopolitical risk potentially down um but there’s a chance that Israel could come back with a second strike after the US election particularly depending on how that election is decided yes so at a very high level I think that geopolitical uncertainty you know remains quite elevated you have the US elections um the conflict in the Middle East doesn’t seem fully resolved and oil markets at this point are only pricing in a very small probability of of disruptions and you don’t necessarily need to see phys iCal disruptions to see a tightening in Middle Eastern Oil Supply you could also have a tightening in the enforcements of sanctions uh one key fact is that over the last two years Supply from Iran has risen by about 1 million barrels per day that’s about 1% of the global market that could potentially uh reverse uh if Western sanctions are titled more enforced are enforced more more strictly yeah I I I I think looking at the supply demand picture there are a lot of questions the supply seems like it’s it’s pretty abundant at this point Uh Russian oil hasn’t shut down Iranian oil hasn’t shut down us producers are are going and as you mentioned depending on what happens with this election we’ll see if us oil production Rises next year um but it’s already at pretty high levels um and there are questions about what happens with the economy if the economy turns down and demand weakens whether that be here in the United States or globally um how much of a fine point are we on where where could prices go let’s say on the downside or the upside yes so I think if I at 2025 we have a brand range of 70 to 85 base case mid 70s I do think the risks are more for brand for brand subtract $5 for TI uh base case around 70 a touch higher than we are now but I do think the risk are skewed somewhat to the downside especially if you go out further into uh into next year the possibility that OPEC brings barrels more barrels back than than our base case the possibility of potentially a a weaker global economy if trade tensions were to escalate so i’ say medium-term downside to sort of the $70 TI midpoint of our forecast and to put some numbers on it if OPEC brings barrels back uh for 12 months then our model suggests that brand would end up in the low 60s wow um as opposed to our base case of of mid mid 70s um in the short term however I do see some upside risk actually if you look at fundamentals over the last two years if you zoom out Global Oil stock levels have imp pretty much flat but over the last 3 to four months you have seen some tightening China demand is finally picking up us Supply growth is uh you know moderating um and so yeah I think tactically we are we’re constructive but if you look out to 25 uh you especially the second half of 25 we see risku to down okay

Daan Struyven, Goldman Sachs head of global commodities research, joins ‘Squawk Box’ to discuss the recent oil price trends, impact of geopolitical risks, and more.