Goldman Sachs continues to be bullish on crude oil and other major commodities, expecting a rally after the biggest-ever destocking in commodities that is currently underway.
Should major economies, including the U.S., avoid deep recessions, the foundations for a rally across the commodity complex remain intact, Goldman Sachs analysts wrote in a note, although they admitted their price calls have been wrong so far this year.
“Bulls, like ourselves, find comfort in the fact that end-use demand across the commodity complex has not shown recessionary signs and investment in supply remains elusive,” Goldman’s analysts said in the note, as carried by Bloomberg.
“But this misses the point that we were wrong on price expectations.”
Although prices continue to move opposite Goldman’s predictions, we are currently seeing what “It is likely the largest commodity destocking the complex has ever witnessed.”
Investors are also cashing in on hedging, and all these factors are setting the stage for commodity price increases later this year, the investment bank said.
“The absence of a recession would likely lead to higher oil and commodity prices as well as higher rates, to which equities would likely react poorly,” Goldman said.
“Despite weak manufacturing-related demand, overall demand and inventory data across the commodity complex support our more bullish view,” the bank’s analysts added.
Early in April, hours after OPEC+ announced it would reduce its combined oil production by more than 1 million bpd between May and December, Goldman Sachs raised its price forecast to $95 from $90 a barrel at the end of the year for Brent Crude. The bank also raised its Brent forecast for 2024, now seeing it at $100 at the end of the year from an earlier projection of $97.
Early on Wednesday, Brent was trading at just below $78 per barrel, rising by around 1.5% on the day following estimates of a large U.S. inventory draw and a warning from the Saudi energy minister for short sellers.