This adjustment comes amidst a surge in crude prices fueled by escalating geopolitical tensions in the Middle East. The commodities team, led by Daan Struyven, now sets a new forecast range of $70 to $85 for Brent crude.

The decision to lower the price forecast is based on several factors, including higher inventories in the OECD (Organization for Economic Co-operation and Development) countries and weaker demand from China. The firm also adjusted its average Brent price forecast for 2025 to $77 per barrel, down from the previous estimate of $82.

Goldman Sachs analysts explain that the fluctuation of Brent oil prices within the $75-$90 range has been a direct result of the market's constant shift between fears of supply disruptions and concerns over weakening demand, particularly in Western countries and China.

One of the critical contributors to the revised outlook is the slower-than-anticipated demand growth from China. Goldman Sachs now expects China's oil demand growth to decelerate significantly, with just 0.2 million barrels per day projected for the first half of 2024. They even anticipate negative year-over-year growth during the summer of 2024.

On the supply side, the United States continues to surpass expectations. Recent data from August indicates that crude oil production in the U.S. Lower 48 states has reached 11.25 million barrels per day, surpassing Goldman's earlier projections by 0.2 million barrels per day. The bank attributes this unexpected increase to operational efficiency gains among U.S. producers, leading to a faster pace of new well development.

Despite the robust U.S. supply, Goldman Sachs acknowledges the possibility of upside volatility in oil prices. The report emphasizes short-term inventory volatility, geopolitical uncertainties, and the potential decline in Iranian supply as factors that could drive higher volatility in oil prices.

However, the bank foresees several downside risks that could impact oil prices. They mention the possibility of China's oil demand remaining flat, with a potential price drop to $60 per barrel by December 2025. Additionally, a 10% tariff on U.S. goods imports and a complete reversal of the extra OPEC cuts could push Brent crude down to $63 per barrel and $61 per barrel, respectively.

Goldman Sachs has also explored more severe downside scenarios, including a moderate global recession. In such cases, they predict steep declines in Brent crude prices, ranging from $19 to $30 per barrel from the baseline.

Looking at recent events, the analysts expect the production disruptions in Libya to be short-lived as both governments have incentives to resume production. They also anticipate OPEC+ to gradually unwind the 2.2 million barrels per day of extra voluntary cuts that were announced earlier. Specifically, Saudi Arabia is expected to increase crude production from just under 9.0 million barrels per day to slightly over 9.2 million barrels per day by December 2024.

Goldman Sachs' revised oil outlook serves as a reminder of the complex and unpredictable nature of the global oil market. As geopolitical tensions persist and supply and demand dynamics continue to evolve, market participants will closely monitor these projections for potential impacts on the energy industry and global economy.