Oil Comment Early Thoughts on Potential Oil Market Effects from Attacks in Israel pdf
Oil Comment Early Thoughts on Potential Oil Market Effects from Attacks in Israel pdf
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  1. Our thoughts are with those affected by the recent shocking attacks in Israel. Recognizing the elevated uncertainty and incomplete information at this early stage,we note that there has been no impact to current global oil production, and that wesee as unlikely any immediate large effect on the near-term supply-demand balanceand near-term oil inventories, which tend to be the main fundamental driver of oilprices. We thus continue to forecast that the Brent oil price rises from $85/bbl as ofFriday to $100/bbl by June 2024. That said, we identify two potential implications ofSaturday’s shocking attacks that may weigh on global oil supply over time.1. Reduced probability of Saudi-Israeli normalization and associated boost toSaudi production.The Wall Street Journal reported on Friday afternoon (before the attacks) that “SaudiArabia has told the White House it would be willing to boost oil production early nextyear if crude prices are high—a move aimed at winning goodwill in Congress for adeal in which the kingdom would recognize Israel and in return get a defense pactwith Washington, Saudi and U.S. officials said.” In our view, the escalating conflict inGaza reduces the likelihood of a near-term normalization in Saudi-Israeli relations. We continue to assume that Saudi Arabia unwinds the extra 1mb/d production cut,announced in June 2023 and extended through December 2023, only gradually by2025Q1. We still expect Saudi crude production to stay flat at 9mb/d through2024Q1, and then start rising by 0.25mb/d per quarter in the rest of 2024. Alongwith the decline in oil prices over the last two weeks, and limited evidence for largedraws in global commercial visible oil inventories over the past three months, thisweekend’s developments reduce the probability of an early unwind of the Saudiproduction cuts. All other things equal, our pricing framework suggests that a hypothetical scenariowhere Saudi crude production stays flat at 9mb/d in 2024—a scenario which nowappears more likely than before the weekend— would raise our December 2024Brent price forecast to $104/bbl, or $4/bbl above our $100/bbl baseline. In contrast,a scenario where Saudi crude production rises by 1mb/d to 10mb/d in January2024—which would lower our December 2024 Brent price forecast by $8/bbl to$92/bbl—now appears less likely than before.2. Downside risks to Iranian oil production. Daan Struyven+1(212)357-4172 |daan.struyven@gs.comGoldman Sachs & Co. LLCCallum Bruce, CFA+1(212)902-3053 |callum.bruce@gs.comGoldman Sachs & Co. LLCFarouk Soussa+44(20)7051-9349 |farouk.soussa@gs.comGoldman Sachs InternationalOil Comment: Early Thoughts on Potential Oil Market Effects fromAttacks in Israel 8 October 2023 | 3:21PM EDTInvestors should consider this report as only a single factor in making their investment decision. For Reg ACcertification and other important disclosures, see the Disclosure Appendix, or go towww.gs.com/research/hedge.html.
  2. We believe the de-escalating trend in regional tensions prior to this weekend’s events(as illustrated by the release of both Iran and US prisoners) had likely been an importantfactor behind the rise in Iranian oil production over the past year. For context, theInternational Energy Agency (IEA) estimates that Iran crude production has increased bynearly 0.5mb/d year-over-year as of August 2023. With the possibility of broader regionaltensions re-escalating as a result of the conflict in Gaza, we think the risks to our Iranianproduction projections are now tilted to the downside.We continue to assume that Iran crude production growth slows down significantly, andthat Iran output edges up only slightly from 3.20mb/d in August 2023 to 3.25mb/d byJanuary 2024. For reference, our 2024 Iran crude forecast of 3.25mb/d is 0.6mb/dbelow the production level Iran achieved in 2018Q1, before the US announced itswithdrawal from the Joint Comprehensive Plan of Action (JCPOA). Our pricingframework suggests that any 100kb/d decline in Iran 2024 production relative to thebaseline would mechanically raise the end-2024 Brent oil price by just over $1/bbl. 8 October 20232Goldman SachsOil Comment
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