Remember all those predictions about crude oil prices hitting US$100? Well, that’s old news now.

According to Goldman Sachs, the new stretch target for the benchmark Brent crude oil price is now US$105 per barrel in 2023 with a pit stop at US$96/bbl sometime this year.

By way of comparison, the Brent is currently priced at US$88.62/bbl on concerns about Russia invading Ukraine as well as a drone attack in the UAE, so this scenario isn’t actually too far away from happening.

The investment bank’s bullishness boils down to its belief that the market’s current deficit will continue, with drawdowns on inventories persisting albeit at a lower level through the first quarter of 2022.

This will take the global surplus down to 0.4 million barrels per day (MMbbl/d) in the second quarter, well below the seasonal average.

Crude oil prices could keep climbing

And it might well get worse.

Goldman said the drawdowns will take OECD inventories down to their lowest level since 2000 alongside a decline in OPEC+ spare capacity to historically low levels of about 1.2MMbbl/d.

At US$85/bbl, the market will remain at such critical levels with insufficient buffers relative to demand and supply volatilities, through 2023.

“As the six precedents since 1990 invariably show, consumers attempting to secure physical supply will first drive backwardation steeper, at which point the unwind of producer hedges and consumer forward buying lead long-dated prices higher, normalising inventories and spare capacities through the combination of demand destruction and higher supply,” the bank noted.

It added that this rebalancing will require long-dated prices to hit US$90/bbl, taking its Brent spot forecast up to US$96/bbl this year and US$105/bbl in 2023.

This will allow the rebalancing to be achieved through 0.6MMbbl/d of demand reduction though this will require US shale oil production to grow by 0.8MMbbl/d year-on-year in 2023.

Goldman also ruled out forecasting US$100/bbl oil on an argument of running out of crude oil as shale resources remain large and elastic.

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