Barely a month out from sledging lithium prices, Goldman Sachs now has its crystal ball out for oil and if they are right, the oil price going forward is not going to be a pretty sight.

While its bearish lithium forecast was quickly picked apart by industry and other analysts – as reported here by Jessica Cummins – the investment bank’s belief that oil price can soar as high as US$140 per barrel this summer (in the Northern hemisphere) has a lot more support.

It believes that underinvestment in the oil sector – a known issue due to decarbonisation pressure that has made investors reluctant to back fossil fuel projects – would continue to drive prices higher.

Speaking to CNBC, Goldman Sachs chief commodities strategist Jeff Currie said investment continued to run from the space at a time when it should be racing towards it.

“Ultimately, the only way you’re solving these problems is through increased investments,” he added, pointing to the chaos caused by Russia slashing natural gas exports to Europe through the Nord Stream 1 pipeline.

There is plenty of backing for this, starting with the benchmark Brent Crude price, which has climbed to US$116.30/bbl after slumping to US$110.05/bbl last week.

The broader OPEC+ grouping certainly isn’t helping things either, with continued underproduction by some of its members leading to a warning that the oil market surplus would be just 1 million barrels per day this year, down from its previous 1.4MMbpd estimate.

Meanwhile, the Bank of America flagged that oil prices could climb as high as US$150/bbl if European sanctions hit Russian supplies, though it believes an average oil price of about US$102/bbl in 2022 and 2023 is more likely.

“Surging inflationary pressures from food to energy to services, coupled with fast paced interest rate hikes, suggest oil demand will struggle to fully recover to pre-pandemic levels until next year,” its analysts noted.

Bearish oil price signals?

But the Bank of America is also covering its bases.

It warned that a recession would trigger a pullback in fuel consumption, leading to oil price declines of as much as 30% though any easing in monetary policies from central banks would probably keep prices around the US$75/bbl mark.

Fund managers also appear to be selling out of oil – or were doing so last week – with Reuters reporting that hedge funds and other money managers sold the equivalent of 71 million barrels in the six most important petroleum futures and options contracts in the week to June 21 – the fastest since the week ending March 8.

However, Goldman Sachs noted that it will take some time before inflation erodes oil demand enough for a sustained price decline.

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