Oil Price Volatility Alert: Goldman Sachs Warns of Two-Way Risk

Goldman Sachs Group highlights that oil prices are currently exposed to two-way risks: a reduction in Middle Eastern supply due to the conflict in Iran and a concurrent decline in global oil demand.

Analysts, including Daan Struyven, noted in a May 31 report that April oil sales data from China and Western Europe indicate a downside demand risk of approximately 2 million barrels per day, exceeding the bank's already modest expectations for the month.

This development poses a downside risk of about $10 per barrel to the bank's fourth-quarter Brent crude price forecast of $90.

The war in Iran has disrupted global oil markets, with a sharp reduction in oil shipments from Persian Gulf producers through the Strait of Hormuz, leading to the shutdown of millions of barrels of production.

Since the conflict began in late February, the benchmark Brent crude price has surged by over a quarter, which has subsequently triggered a contraction in demand, particularly for jet fuel and petrochemical feedstocks.

Goldman analysts stated: "We believe that sustained supply reductions in the Middle East present a significant upside price risk; however, weak demand also carries a considerable downside price risk. The dampening effect of higher oil prices on end-user demand has been more pronounced than previously anticipated."

It is noteworthy that Goldman Sachs had already issued a clear warning about two-way price risks in mid-April, just as the 'reopening' of the Strait of Hormuz was driving a sharp decline in crude prices.

At that time, the team led by Daan Struyven pointed out that the market's risk structure had shifted from a "significant net upside" to a two-way risk profile: prices could surge significantly due to prolonged flow disruptions or face substantial downward pressure from weaker-than-expected demand and rapid progress in peace negotiations.

Goldman had already cautioned then that the logic for a unilateral long position in oil had weakened, and prices had entered a phase of two-way volatility.

On Monday, Brent crude futures traded near $93 per barrel. The previous Friday, the futures price had hit a six-week low, driven by market optimism regarding a potential peace agreement between the US and Iran.