Oil prices are forecast to trade between $70 and $100 a barrel in 2024

The price of a barrel of oil is likely to trade between $70 and $100 for most of 2024, according to Asset & Wealth Management Investment Strategy Group (ISG) at Goldman Sachs.

The forecast reflects slowing oil demand growth arising from tighter financial conditions and still elevated US recession odds over the coming year. ISG assigns a 30% to 40% likelihood of a US recession over the next 12 months. At the same time, non-OPEC production growth is expected to be robust, especially outside of the US. OPEC is also anticipated to bring back at least some of its reduced production. ISG’s forecasts may differ from those of other groups at Goldman Sachs.

Despite this forecast range, short-term volatility will remain a part of the picture. “A stable price range does not preclude potential sharp price rallies and drawdowns, particularly given current macroeconomic uncertainties and heightened geopolitical risks,” according to ISG in their In Brief note. Current negotiations among OPEC+ countries regarding their 2024 production quotas illustrate the difficult task at hand in balancing the market, and could result in additional price volatility.

The price of oil in 2024 will depend heavily on OPEC

OPEC production policy and discipline are likely to be key factors supporting the price path in 2024. ISG notes that two of the biggest OPEC+ producers, Saudi Arabia and Russia, committed to production cuts this year. Saudi Arabia announced a third production cut in June, and Russia declared its plan to cut production by 500,000 barrels a day.

Both countries have so far followed through, surprising the market as prior production cut announcements had not been fully implemented, according to ISG.

How the Israel-Hamas war could affect oil prices

The Israel-Hamas war could cause oil price volatility. If the war escalates, spot oil prices may experience sharp but transitory prices increases. Potential oil supply disruptions from the war include tighter oil sanctions on Iran, Iran retaliating by attempting to block the Strait of Hormuz (a shipping passage which accounts for approximately 20% of global oil supplies), an Arab oil embargo, and other Arab producers cutting back on production. Blocking the Strait of Hormuz has never been done and is unlikely to be successful for any extended period. As discussed on a recent client call hosted by ISG, sea mines in the Strait of Hormuz can be cleared in several weeks.

The dynamics of the global oil market have changed since the Arab oil embargo of the 1970s. Notably, oil intensity of the global economy — measured by barrels of oil required to generate a unit of GDP — has fallen by 60% since 1973, from 1 barrel per $1,000 of GDP to 0.4 barrel. The Middle East today accounts for just 35% of global oil exports, compared with 55% in 1980. The OECD nations’ petroleum stocks can cover more than two months of demand, and OPEC likely has over 4 million b/d of spare capacity.

Since 2000, major episodes of violence between Israel and Palestine have had a neutral impact on oil prices overall. While oil prices jumped more than 5% immediately following the Hamas attack, there has been no impact to oil supply so far.  That being said, oil prices are volatile and can temporarily increase on mere fears of disruption, as experienced at the onset of the Russia-Ukraine war in 2022.

Note: ISG projections in this article are based on assumptions and are subject to significant revision and may change materially as economic and market conditions change.

Disclaimer: The Investment Strategy Group, part of the Asset & Wealth Management business (“AWM”) of GS, focuses on asset allocation strategy formation and market analysis for GS Wealth Management. Any information that references ISG, including their model portfolios, represents the views of ISG, is not financial research and is not a product of GS Global Investment Research and may vary significantly from views expressed by individual portfolio management teams within AWM, or other groups at GS.

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