Goldman Sachs: Supply disruption risks intensify, raises December and next year's oil price forecasts

Goldman Sachs: Supply disruption risks intensify, raises December and next year's oil price forecasts Although Middle East production is continuing to recover as Goldman Sachs had previously expected, Goldman nonetheless announced an upward revision to its crude oil price forecasts for two interrelated reasons: first, substantial downside supply risks are likely to sustain an elevated risk premium in the near term; second, Goldman's newly introduced "global supply disruption reserve" covers medium-term high disruption risk and lowers its medium-term global oil production forecast. Specifically, Goldman raised its December Brent forecast from US$90/bbl to US$105, and WTI from US$81 to US$94; its 2027 average price forecast was raised from US$80 to US$88 (Brent) and from US$73 to US$78 (WTI). October's gains came almost entirely from risk premium, not fundamentals Goldman estimates that the estimated risk premium jumped to about US$27/bbl, which explains most of the rise in October Brent spot futures to US$118. By contrast, the bank estimates that Brent's fair value was essentially unchanged in September and October, holding in the US$90 rangebecause the main variable determining fair value, global inventories, was roughly flat. Middle East supply and global oil demand each adapted to elevated shipping risks and high oil prices, keeping global production and consumption broadly balanced over the past two months. Goldman used a rule of thumb to quantify the degree of panic currently priced by the marketfor every 1 million b/d reduction in supply lasting six months, Brent prices rise slightly more than US$5. On that basis, the US$27 premium implies the market has already priced in a 5 million b/d month-on-month decline in Middle East production lasting six months. Meanwhile, December 2027 Brent futures rising to the high US$80s and December 2028 contracts rising to US$80 indicate growing market concern about persistently weak Middle East exportspossibly stemming from damaged infrastructure or repeated escalation of shipping attacks. Adaptation mechanism: global liquids market broadly balanced in September-October Goldman estimates that although Persian Gulf production was hit by 4.4 million b/d in September-October (versus the 2025 average), the global liquids market remained broadly balanced during this period, in sharp contrast to the 7.3 million b/d deficit in Marchthe shock was roughly offset by three factors: a 1.1 million b/d surplus in 2025, a 2.1 million b/d increase in non-Gulf production, and a 1.3 million b/d decline in global oil demand. Export data corroborate this adaptation: on a 14-day moving average basis, Goldman's estimated crude exports (including dark fleet exports) have been at or above the 2025 average in recent weeks, both for Persian Gulf exporters and globally, despite some pullback in recent days. Post-midterm escalation path: Polymarket implied probability rises to about 75% by year-end The reason the risk premium has risen sharply across the entire crude futures curve is that the market is increasingly pricing in escalation after the November 3 US midterm elections and the consequent weakness in Middle East supply. Citing Polymarket implied probabilities, Goldman said the probability of "US-Iran ceasefire ending due to escalation" rose from 10% before the election to about 50% around November 15 and to about 75% by year-end. Market participants are focused on three possible US and/or Israeli military actions against Iran: first, strikes on underground nuclear facilities (such as Pickaxe Mountain) to degrade Iran's nuclear capabilityUS President Trump said on October 15 that the US might have to strike this site associated with Iran's nuclear program; second, strikes on missile facilities near the Strait of Hormuz (such as Bandar Abbas) to degrade Iran's ability to attack ships; third, broader strikes on Iran's energy infrastructure (such as power plants and Kharg Island) to force Iran's leadership to accept US demands in negotiations. Goldman noted that the risk of Iran and its allies striking GCC countries' oil infrastructure may be highest in the third scenario; Iran has also signaled it could strike US military bases and other regional infrastructure such as undersea cables, ports, and desalination plants. Global supply disruption reserve: 1 million b/d in 2027 Middle East and Russia-Ukraine conflicts, combined with broader geopolitical fragmentation, have created elevated disruption risk. Because the timing and location of disruptions are nearly impossible to predict, Goldman's baseline scenario now incorporates a 1 million b/d global supply disruption reserve for 2027meaning its 2027 global oil production baseline is 1 million b/d lower than the sum of its country-by-country baselines. This reserve mainly captures larger-scale disruptions in Persian Gulf production that could exceed the baseline scenario. In the country-by-country baselines, Persian Gulf oil production excluding Iran would recover to the 2025 average in Q1 2027 and to the February 2026 level in Q2, while Iran's production lags significantly. The reserve also covers the non-zero probability of above-baseline disruptions in other high-risk regions (especially Russia, Kazakhstan, and Nigeria, Libya, and Sudan in Africa). The 1 million b/d assumption is slightly above the 700,000 b/d median of "unexpected global oil production damage" in modern history (sample from January 2012 to September 2026); Goldman's rationale is that the ongoing US-Iran and Russia-Ukraine conflicts imply above-normal disruption risk. For reference, the three major global oil supply shocks since 1980 are: Iraq's invasion of Kuwait in 1990 (6.3% shock to annual global production), the Iran-Iraq War in 1980 (5.9%), and the 2026 Hormuz crisis (5.5%). Risks more symmetric, but still net tilted to the upside Goldman said the risks to its revised price forecasts are more balanced than before but still retain an upward tilt: Upside scenario: If average Gulf production in 2027 is 3.5 million b/d below its 2025 average (the baseline scenario is 1.1 million b/d above), Brent could reach US$140/bbl, with a 2027 average of about US$130. The most likely upside triggers are intensified shipping attacks, damage to oil infrastructure, and a more persistent risk premium. Downside scenario: If average Gulf production in 2027 is 2.5 million b/d above the 2025 level and the disruptions assumed in the global supply reserve do not materialize, Brent could fall into the US$60 range in 2027. The most likely downside triggers are faster Middle East production recovery and/or a faster decline in the risk premium (e.g., a diplomatic agreement the market views as credible and sustainable). In modeling terms, Goldman assumed, based on the historical pattern that slightly more than 80% of the risk premium carries over to the next month, a premium of US$16 in Q4 2026 and US$7 in Q2 2027; and assumed that the US$9 structural boost to long-term fair value applied at the start of the war persists throughout the forecast periodhigher structural disruption risk to supply and spare capacity requires higher prices to incentivize production. Forecast table: upgrades at the front end, downgrades at the back end Goldman's full forecast table shows that the upgrades are concentrated at the front end. The quarterly Brent path is: Q4 2026 US$108 (previously US$95), Q1 2027 US$98 (previously US$87), Q2 US$90 (previously US$82), Q3 US$84 (previously US$77), Q4 US$79 (previously US$75); monthly, November US$110 (previously US$95), December US$105 (previously US$90). For annual averages, 2026 was raised from US$90 to US$93 and 2027 from US$80 to US$88. Notably, the back end was downgraded: Brent's 2028 average was cut from US$75 to US$73 and 2029 from US$75 to US$74; WTI 2028 from US$70 to US$66 and 2029 from US$70 to US$69. This is consistent with its judgment that "the baseline scenario remains below the forward curve"Goldman assumes the extremely high risk premium gradually eases and Persian Gulf production continues to recover: its 2027 Brent baseline of US$88 is below the forward curve of about US$94 for the same period. Market background The report was published on November 1, after the prior trading day (October 30), when the December Brent contract settled at US$117.64/bbl, up 2.40%, and touched US$118 intraday, a new high since April; the December WTI contract was at US$104.12, up 2.08%. The seven core OPEC+ members decided at an online meeting on November 1 to keep production quotas unchanged for December.