Goldman Sachs issued an extreme oil price warning: if the "global oil pulse" continues to be disrupted, Brent oil may break below $120 again in the fourth quarter.

The global energy market is standing at the crossroads of geopolitical tensions and supply-demand dynamics. Goldman Sachs released a heavyweight report on Monday warning that if the shipping disruption in the Strait of Hormuz continues, Brent crude oil prices could surpass $120 per barrel in the fourth quarter of 2026. Although this is not Goldman's base case scenario, with the ongoing escalation of tensions between the US and Iran and oil flow in the Persian Gulf dropping to below 45% of pre-war levels, this risk is becoming increasingly real. Goldman's dual-scenario framework: $80 baseline and $120 warning Goldman has outlined two completely different paths for the oil market. Goldman also pointed out that the risks facing the forecast are "skewed to the upside," due to the blockage of shipping in the Strait of Hormuz and threats to the Red Sea route. Baseline scenario: Assuming that tensions in the Middle East gradually ease, Goldman expects Brent crude oil to average $80 per barrel in the fourth quarter of 2026 and West Texas Intermediate (WTI) at $75; Brent is expected to further decline to $75 in 2027. This forecast is based on the assumption that Persian Gulf oil exports will return to normal by the end of August and that shipping flow through the Strait of Hormuz will return to 70% of pre-war levels. Upside risk scenario: If shipping in the Strait of Hormuz continues to be blocked, Goldman warns that Brent crude oil prices could surpass $120 per barrel in the fourth quarter. Including analyst Daan Struyven, Goldman analysts pointed out in a report on July 20 that "the escalation of the situation in the Middle East and the estimated decrease in oil flow in the Persian Gulf to below 45% of pre-war levels have pushed up oil prices." In a more extreme scenario, if the disruption continues until 2027, oil prices could even reach $140 per barrel. Market Vulnerability: Low inventories amplify supply shocks Goldman pointed out that the current oil market's vulnerability to supply shocks is further amplified by two factors. First, the decline in global inventories in the second quarter has made the oil market more susceptible to supply shocks. Even before the US-Iran war broke out, the diesel market was quite tight, and continued attacks on Russian refineries in Ukraine further tightened the supply of refined oil products. Second, multiple supply risks are overlapping. In addition to geopolitical factors, seasonal factors such as hurricanes, extreme summer temperatures, and refinery maintenance delays are also adding extra pressure on supply. However, Goldman also pointed out that a slowdown in Chinese imports and an increase in demand elasticity may limit the expected price increases. Goldman had previously lowered its 2027 Brent forecast to $75, the reason being strong supply growth and continued weak demand. Oil Price Volatility Goldman's warning is not alarmist the market has already priced in geopolitical risks. During the Asian trading session on July 20 (Monday), Brent crude oil briefly broke above $91 per barrel, reaching its highest level since June 11. Prior to this, the US announced consecutive nights of military strikes against Iran, while at least two US soldiers were killed in Jordan. Brent eventually closed at $89.22 per barrel, up $1.12 or 1.3%. As of the time of writing on Tuesday, Brent crude oil futures were at $88.71 per barrel. This price has significantly fallen from the peak of $126 in late April at the beginning of the US-Iran conflict, but has risen by about 20% from around $73 at the end of June. In just three weeks, Brent has risen by over 23%, setting a record for the highest monthly increase in recent years. Strait of Hormuz: the "Achilles' heel" of global energy The strategic importance of the Strait of Hormuz cannot be overstated. Approximately 10% of global seaborne oil trade and 8% of liquefied natural gas (LNG) trade pass through this narrow waterway. Once this passage is blocked, the global energy supply chain will suffer a severe blow. The direct trigger of this crisis was a series of attacks on multiple commercial ships in the Strait of Hormuz. Since July 11, the US military has launched multiple strikes against Iranian military support points along the coast of the Strait of Hormuz, with highly concentrated targets aimed at systematically depriving Iran of its military control ability over the strait. Iran, on the other hand, has launched large-scale attacks on US military targets in the Gulf region, with both sides continuously escalating attacks on each other. Iran has announced the closure of the Strait of Hormuz, while the US has announced the resumption of a naval blockade against Iran. Analysts point out that the competition for the Strait of Hormuz has compressed US-Iran negotiations from a negotiable multi-topic discussion to a "zero-sum game." According to ship tracking data, the number of large oil tankers passing through the Strait of Hormuz has dropped from an average of about 8 per day in early July to only about 2 per day. At the same time, Iran-backed Houthi rebels in Yemen threaten to block Saudi Arabia's oil transportation the oil transport through the Red Sea is crucial for ensuring that Persian Gulf oil supplies can still reach customers after interruptions. Hedging strategy: Long European diesel spreads For investors looking to hedge against ongoing geopolitical risks in the Middle East and Russia, Goldman Sachs recommends taking a long position in the spread between European diesel futures for December 2026 and March 2027. Goldman analysts pointed out that before the US-Iran war broke out, the diesel market was already quite tight; continued attacks by Ukraine on Russian refineries, combined with factors such as hurricanes, extreme summer temperatures, and refinery maintenance delays, could further impact diesel supply. This strategy provides investors with a tool to directly bet on the geopolitical risk premium in the refined oil market.