The all but halted flows via the Strait of Hormuz will deplete oil inventories in advanced economies, prompting a rise in oil prices, Goldman Sachs said on Wednesday as it hiked its second-quarter projections for Brent prices by $10 to $76 per barrel.
The U.S. investment bank also raised significantly the forecast for WTI Crude for the second quarter, expecting the U.S. benchmark price to average $71 per barrel between April and June, up by $9 a barrel compared to the previous projection.
Early on Wednesday in Asian trade, oil prices were about $6-7 per barrel higher than Goldman’s Q2 forecasts, with Brent above $83 and WTI topping $76 per barrel, as the market grapples with the now real supply risk with the stalled tanker traffic via the vital Strait of Hormuz.
“If Hormuz volumes were to remain flat for 5 additional weeks, Brent prices would likely reach $100, a level associated with larger demand destruction to prevent inventories from falling to critically low levels,” Goldman Sachs analysts wrote in a note on Wednesday carried by Reuters.
Depending on the extent and duration of restrictions to transit through the Strait of Hormuz, Goldman Sachs Research’s estimates of the oil price rise range from $1 to $15 per barrel, according to a Tuesday report by Daan Struyven, co-head of Global Commodities Research and head of Oil Research at Goldman.
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Oil prices could jump by $15 per barrel if the Strait of Hormuz is effectively closed for a full one month and there are no offsets such as utilization of spare pipeline capacity or releases of strategic petroleum reserves, according to Goldman Sachs.
If Middle East producers use all estimated spare pipeline capacity to bypass the Strait – at about 4 million barrels per day – oil would jump by $12 per barrel in the event of a full one-month closure.
“The International Energy Agency has estimated that 4.2 mb/d of the oil flows through the Strait of Hormuz can be redirected using existing spare pipeline capacities, implying around 16 mb/d of oil flows are at risk from a full closure,” Goldman Sachs analysts wrote.
By Tsvetana Paraskova for Oilprice.com
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