Goldman Sachs holds 2026 oil forecast steady but flags two-way risks

(P1) Goldman Sachs is holding its 2026 average price forecasts for crude oil steady, but the bank has fundamentally altered its risk assessment to "bi-directional" after a week that saw WTI crude futures plunge over 11% in a single day. The bank maintained its 2026 price targets for Brent at $83 per barrel and West Texas Intermediate at $78 per barrel.

(P2) "'The risk structure, previously characterized as 'significant net upward,' has been rebalanced to 'two-way risks'," Daan Struyven's team at Goldman Sachs said in a report from April 17. "The logic of being unilaterally long crude oil needs to be re-examined."

(P3) The reassessment follows a dramatic sell-off triggered by reports of the Strait of Hormuz reopening, which sent WTI futures to their lowest level since March 10. Goldman's report noted that the actual supply impact has been less severe than feared, revising its estimate for March's average Persian Gulf production cut down to 8 million barrels per day from a previous forecast of 9.7 million.

(P4) The shift implies that while prices could still surge if Mideast oil flows remain blocked for longer than the bank's baseline assumption of a mid-May normalization, there is now significant downward pressure from weakening demand and the potential for a rapid unwind of geopolitical risk. For investors, this signals that simple long positions carry a much weaker risk-reward profile, increasing the value of volatility-based strategies using options.

Supply Risks Shift as Production Impact Eases

Goldman Sachs pointed to two primary factors that have tempered the supply-side risks that previously dominated the market outlook.

First, if a substantive peace agreement is reached in the Middle East, the geopolitical risk premium currently embedded in oil prices would face rapid normalization, creating a significant near-term downside risk. The sharp sell-off on April 17 demonstrated the market's sensitivity to this factor.

Second, the bank lowered its estimate for production shut-ins, citing higher-than-expected storage capacity in the Middle East. The current estimate includes reductions of approximately 3 million barrels per day from Iraq, 2.1 million from Saudi Arabia, 1.3 million from the UAE, 800,000 from Kuwait, 500,000 from Iran, and 300,000 from Qatar. This suggests the actual global supply shock is more moderate than initially anticipated, weighing on prices in the medium term.

Demand Appears More Fragile Than Expected

The market's focus is shifting from geopolitics to a more fragile demand picture, with preliminary data showing a rapid decline in consumption, particularly in the most price-sensitive sectors.

Goldman identified two main areas of weakness: jet fuel and petrochemical feedstocks like naphtha and liquefied petroleum gas. Demand for air travel has a degree of consumer elasticity, while petrochemical producers reduce output when high feedstock costs erase their margins.

The bank noted this demand destruction is being amplified by extremely high global refining margins, meaning consumers and industrial buyers are facing much steeper price increases for finished products like gasoline and diesel than the rise in crude alone would suggest. This pain is most evident in emerging markets across Asia and Africa, where consumption is more sensitive to price.

Lasting Disruptions Remain Key Upside Risk

Despite the growing downside pressures, Goldman Sachs stressed that significant upside risks for oil prices remain. The primary risk is the potential for the low-flow state in the Strait of Hormuz—currently seeing a 92 percent reduction in traffic—to persist beyond the bank's mid-May normalization forecast. Every day the strait remains impaired accumulates supply pressure, which could send prices sharply higher if negotiations falter.

A second upside risk is the potential for permanent damage to oil and gas infrastructure in the Middle East from the conflict, which could make a recovery in production capacity a much longer process than markets currently expect.

This article is for informational purposes only and does not constitute investment advice.