Goldman Sachs: High oil prices will last longer, and under two scenarios, oil prices will reach new all-time highs

Questioning AI · Why Does Structural Safety Premium Drive Up Long-Term Oil Prices?

As conflicts in the Middle East enter their fourth week, spot Brent and WTI crude prices have surged to $112 and $98 respectively. Based on the extension of supply disruptions and the reshaping of global energy security logic, Goldman Sachs has significantly raised its oil price forecasts for this year and next, warning that in extreme scenarios, oil prices could hit a record high—$147.

According to reports from ChaseTrade, Goldman Sachs analyst Daan Struyven and his team released a new crude oil market report indicating that due to ongoing geopolitical tensions in the Persian Gulf, shipping disruptions through the Strait of Hormuz are more severe than expected, leading the market to reprice structural supply risks.

The bank forecasts that the average Brent crude price will reach $110 in March and April (up from the previous estimate of $98), representing a 62% increase over the full-year average for 2025. Additionally, the 2026 average price is raised to $85, with the 2027 forecast remaining high at $80.

Core Logic: From 3 to 6 Weeks of “Shipping Disruption” + Structural Safety Premium

The analysts straightforwardly state that the main reason for the price hike is the correction of expectations regarding flow through the Strait of Hormuz (SoH).

“First, we now assume that the flow through the Strait of Hormuz will remain at only 5% of normal levels for up to 6 weeks (previously, we expected 10% for 3 weeks), followed by a slow recovery period of about one month.”

There are three theoretical paths for the recovery of flow through the Strait of Hormuz: Iran allowing some ships to pass safely, de-escalation of conflict, or military escort.

However, analysts emphasize that uncertainty remains high, and their “6-week” assumption falls between two scenarios: one where U.S. policymakers mention that military actions could last 4-6 weeks, and another reflecting market expectations of conflict duration. The report cites market probability forecasts: a 24% chance the conflict ends before April 15, 39% before April 30, and 50% before May 15.

Beyond the longer disruption assumption, another core logic in the report is the structural safety premium:

“Second, the market recognizes the risks associated with highly concentrated production and spare capacity, which could lead to a structurally higher strategic reserve requirement and long-term forward prices.”

The report suggests that “the largest supply shocks” will force policymakers and markets to reprice: with production and idle capacity highly concentrated in the Middle East, and energy infrastructure vulnerable, there will be a need for higher strategic reserves and higher long-term prices “as a safety premium.” The report also defines idle capacity as: capable of coming online within 30 days and sustainable for at least 90 days.

Two Extreme Scenarios: Oil Prices Could Break the $147 Record

Goldman Sachs details two “upward deviation” risk scenarios, where if the Strait of Hormuz disruption extends to 10 weeks, global oil prices could enter uncharted territory.

“In these two risk scenarios, Brent crude could surpass the record of $147 set in 2008.”

In the “adverse scenario,” after the Strait reopens, Middle Eastern supply gradually recovers, with Brent averaging around $140 in April. Subsequently, as supply and demand respond to high prices, prices are expected to converge to $100 in Q4 2026 and to $90 in Q4 2027.

In the “severely adverse scenario,” if there is a sustained loss of 2 million barrels per day in Middle Eastern production (a “production scar”), historical data from the five largest supply shocks over the past 50 years suggest affected countries’ production could decline by an average of 42% after four years; Iran and seven other Gulf countries together accounted for 30% of global oil output in 2025. Under this scenario, Brent prices would spike sharply initially, then converge to $115 in Q4 2026, and to $100 in Q4 2027.

Higher Oil Prices Will Persist Longer

Even if the Strait eventually reopens, Goldman Sachs emphasizes that prices will not quickly fall back to pre-conflict levels. The firm has raised its 2026 Brent forecast to $85 per barrel (from $77), and WTI to $79 (from $72).

The report highlights that this is the largest oil supply shock in history. Currently, the estimated shortfall in Persian Gulf crude exports is 17.6 million barrels per day. Such extreme risks will prompt policymakers and markets to reassess the risks of highly concentrated Middle Eastern capacity.

“The scale of this shock is so large that policy measures will be difficult to fully offset during and after the disruption. We expect policymakers to rebuild higher strategic reserves after the Strait reopens, and the market will incorporate a safety premium into long-term prices.”

Goldman Sachs believes the reasons for “longer and higher” prices include:

1. Massive inventory gap: By Q4 2026, global commercial oil inventories could face a net loss of about 510 million barrels.

2. Strategic reserve rebuilding: Policymakers will be compelled to replenish strategic reserves (SPR) after reopening the Strait, creating long-term additional demand.

3. Rising forward curve: Due to awareness of infrastructure vulnerabilities, markets will price in about $4 of “safety premium” into forward prices.

Downside Risks to Oil Prices: US Export Restrictions

While highlighting upside risks, Goldman Sachs also points out potential downside factors. If the U.S. government halts military operations at any time, risk premiums could quickly decline. Additionally, although not in the baseline scenario, Goldman does not rule out the possibility of the U.S. implementing oil export restrictions.

The report notes that despite statements from Trump administration officials about a temporary ban on energy exports, under the International Emergency Economic Powers Act (IEEPA), the administration has the authority to impose such restrictions.

If the U.S. restricts crude and refined product exports, the WTI price differential relative to Brent could widen further, and domestic refinery costs may not decrease with falling domestic oil prices—in fact, excess diesel inventories could lead to refinery cutbacks, ultimately pushing up U.S. gasoline prices.