Understanding Crude Oil Price Valuation#
Goldman Sachs has indicated that the fair value of crude oil prices would likely be in the low $60s per barrel if not for the ongoing supply disruptions related to Iran. This assessment comes from Daan Struyven, co-head of Goldman’s global commodities research, who emphasizes the impact of the current situation in the Strait of Hormuz on oil supply.
The Impact of the Strait of Hormuz#
The Strait of Hormuz is a crucial waterway for oil transportation. Struyven warns that any disruptions in this area could lead to significantly higher oil prices, depending on how long the supply constraints last. Goldman Sachs has not altered its core oil price forecasts, which predict Brent crude at $66 per barrel and WTI at $62 per barrel by the end of 2026.
Different Scenarios for Oil Prices#
Struyven outlines two scenarios for how oil prices might react to disruptions. The first scenario looks at prices after the uncertainty fades, while the second considers the immediate impact during the disruption. In the first scenario, if Persian Gulf exports drop by 15 million barrels per day for 30 days, Brent crude could reach a fair value of around $76 per barrel. If the disruption lasts for 60 days, this value could rise to approximately $93 per barrel.
Potential for Price Surges#
During the disruption, oil prices might exceed these estimates if markets anticipate a significant drop in demand to prevent inventory shortages. Goldman’s analysis suggests that if the Strait of Hormuz remains under strain for much of March, oil prices could temporarily surpass previous peaks seen during major oil shocks in 2008 and 2022. Struyven describes this potential scenario as possibly the largest monthly oil supply shock on record, which would compel markets to quickly adjust to the new demand realities.