Interview, Fireside Chat
Why oil and gold prices could keep rising
- Geopolitical escalation in the Middle East following Iran's missile attacks on Israel has increased the probability of a broader regional war, shifting short-term price risks to the upside due to potential supply disruptions.
- Global oil markets currently possess approximately 6 million barrels per day (bpd) of spare capacity, with roughly 80% concentrated in the UAE, Saudi Arabia, and Kuwait.
- Historical analysis indicates that the UAE and Saudi Arabia have offset about 80% of lost supply within two quarters following past Middle Eastern disruptions.
- A scenario involving a two million bpd disruption in Iranian supply lasting two quarters could drive Brent crude to the mid-80s or mid-90s if OPEC does not offset the losses.
- A closure of the Strait of Hormuz, which handles one-fifth of global oil supply, could push prices into triple-digit territory by preventing the export of available spare capacity.
- Goldman Sachs forecasts a baseline Brent price range of $70–$85 for 2025, with a specific target of $76, though risks could extend to the low $60s if OPEC returns barrels to the market sooner than expected.
- Speculative positioning in oil remains in the lowest 1% of historical records as of the week ending last Tuesday, with net global investor positioning turning negative for the first time in 15 years during September.
- China's recent economic stimulus is expected to boost oil demand growth by only 40 basis points of GDP, resulting in a modest 200,000 bpd increase in Chinese oil demand next year, significantly below pre-pandemic averages.
- U.S. oil demand remains the primary global growth driver, supported by a GDP growth rate of approximately 3% and anticipated Federal Reserve rate cuts that could lower the dollar and boost non-U.S. demand.
- Despite high spare crude capacity, the global refining system remains tight with minimal spare capacity, leading to a forecasted widening of refining margins for diesel and gasoline.
- Gold prices, currently around $2,650 per troy ounce, are forecast to reach $2,900 by early next year, driven by structural central bank diversification away from the dollar and a cyclical global easing cycle.
- Central banks' gold purchasing rates have tripled since the freezing of Russian reserves in 2022, a trend expected to persist as a structural support for gold prices.
- Unlike bond markets, gold ETF holdings tend to rise gradually during easing cycles, meaning the positive impact of falling global interest rates is not yet fully priced into the gold market.
- Goldman Sachs analysts identify gold as a superior portfolio hedge compared to oil for non-supply disruption risks, including rising trade tensions, fiscal expansion, and monetary policy uncertainty.
- Potential trade tariffs and a negative impact on global GDP from future trade disputes represent downside risks to the long-term oil price outlook.