In a report released on October 22, Goldman Sachs noted that in 2024, the global crude oil market will be influenced by ample supply and high idle capacity, with the average price expected to be around $76 per barrel. Although the oil market may experience some tension in the short term, overall, the potential for oil price increases is limited. Goldman Sachs analysts indicated that due to the presence of idle capacity and potential trade tariff impacts, the downside risk for oil prices is greater than the upside risk, with Brent crude prices expected to fluctuate between $70 and $85 per barrel.
Goldman Sachs pointed out that oil prices might rise by the end of the year, as the time spreads of Brent crude may underestimate the tightness of the spot market. However, the report also warns that the ample global idle capacity, coupled with Iran's oil production not facing substantial disruptions so far, could lead to a supply surplus in 2025. Nonetheless, unresolved geopolitical conflicts in the Middle East remain a key variable, as any new outbreak of conflict could trigger a sudden increase in oil prices, pushing up the "war risk premium."
Additionally, Goldman Sachs mentioned that it had reduced its Brent crude price forecast by $5 to $70-85 per barrel two months ago, mainly due to weak oil demand in Asia, increased inventories, and rising U.S. shale oil production. Goldman Sachs further noted that future supply increases from the U.S. and OPEC+ countries, especially the expansion of production in non-OPEC oil-producing countries, will continue to put pressure on oil prices, with Brent crude's average price next year likely to drop below $80 per barrel.
Impact on the Futures Market
In the futures market, the expected changes in oil prices have already profoundly impacted traders and investors. Recent large fluctuations in oil prices reflect market concerns about future supply and expectations of weak demand. Goldman Sachs' report further indicates that the potential for future oil price increases will be limited, which may lead to a reduction in bullish positions in the futures market, with more traders turning to strategies mitigating downside risks.
Since trading in the futures market is primarily based on market expectations for future prices, Goldman Sachs' cautious outlook for oil prices in 2024 may prompt more investors to adopt a wait-and-see approach, awaiting clearer supply and demand signals. In fact, in recent months, there has been an increase in the trading volume of short-term contracts in the futures market, indicating a preference among investors for short-term arbitrage rather than long-term bets on rising oil prices. Goldman Sachs' analysis suggests that, despite the current spot market being somewhat tight, the ample idle capacity and expected supply growth will curb the long-term upward momentum of oil prices.
Morgan Stanley has also recently lowered its oil price expectations, reflecting signs of slowing demand growth against the backdrop of a global economic slowdown, further influencing the trend in the futures market. The future price trend largely depends on changes in the global supply landscape, particularly the policy decisions of OPEC+ and the release of U.S. shale production capacity.
Overall, Goldman Sachs believes that with increasing global supply and slowing demand growth, 2024 oil price fluctuations in the futures market may continue to be subdued. Investors should be wary of pullback risks associated with excessive oil prices. Amid growing supply pressure, futures market traders may become more cautious, especially as expectations of a supply surplus in 2025 emerge, potentially leading to more conservative market sentiment.
