Brent Oil Could Surge Past $120 as Middle East Disruptions Escalate: Goldman Sachs Warns of High Risks

Brent Oil Could Surge Past $120 as Middle East Disruptions Escalate: Goldman Sachs Warns of High Risks​

Global energy markets are under intense pressure following escalating geopolitical tensions in the Middle East, according to analysis from Goldman Sachs Group Inc. While maintaining a base forecast predicated on de-escalation, the bank warns that risks associated with shipping disruptions through vital waterways could push Brent crude prices far higher than anticipated.

Analysts at Goldman Sachs, including Daan Struyven, noted that the combination of regional escalation and reduced estimated flows in the Persian Gulf have significantly driven up oil costs recently. Current projections set Brent at $80 a barrel for the fourth quarter and $75 next year, pending improved stability across the Middle East.

Geopolitical Tensions Fuel Oil Price Surge​

Oil prices saw a significant rebound this month, with Brent surging back above $91 a barrel. This rally is directly linked to renewed fighting between Iran and the US, as well as threats by Houthi rebels in Yemen. These coordinated actions threaten shipments originating from Saudi Arabia.

The flow of these cargoes through the Red Sea has been critical for delivering disrupted Persian Gulf crude to international customers. However, persistent disruptions in Hormuz or the wider region could elevate this trend sharply. Brent futures were last recorded at $88.65 a barrel. The oil also previously peaked above $126 a barrel during the initial phase of the US-Iran conflict.

Supply Constraints and Demand Headwinds​

Despite the geopolitical volatility, which exposes the market to supply shocks, mitigating factors are tempering massive gains. Goldman Sachs analysts point out that lower global inventories observed in the second quarter have increased sensitivity to supply issues.

However, a slump in imports from China, coupled with growing demand elasticity among consumers, may limit how high oil prices can climb. These offsetting factors provide some stability against the heightened geopolitical risks.

Investor Hedging Strategies Amid Supply Risk​

For investors seeking to hedge against persistent geopolitical shocks originating from the Middle East or Russia, Goldman Sachs offered a specialized strategic recommendation. The bank suggested going long on the European diesel timespread for December 2026 to March 2027.

Diesel markets were characterized by extreme tightness prior to the ongoing conflicts. Supply risks to this commodity included refinery issues stemming from Ukraine and concerns over hurricanes, extreme summer heat, and delayed plant maintenance across refineries globally.