Goldman Sachs: This Oil Rally Won’t Last

By Tsvetana Paraskova

GS

Although oil prices hit a seven-month high on Friday and continued to soar early on Monday, these high price levels are unlikely to persist for long if global oil supplies are not disrupted, Goldman Sachs said in a note on Monday, carried by Bloomberg.

Oil prices surged on Friday, following the assassination of Iran’s most powerful and visible military leader, Qassem Soleimani, by U.S. forces in Iraq. The attack was carried out following a direct order from U.S. President Donald Trump and was aimed at ‘deterring future attacks’ on U.S. diplomats and service members throughout the region.

“It is not a given that any potential retaliation by Iran would target oil producing assets,” Goldman analysts said in their note dated January 6.

According to Goldman Sachs, the fear-inspired oil rally on Friday came after an “over-enthusiastic December risk-on rally,” which was not justified by any tangible proof that oil demand growth has substantially picked up.

The currently higher oil prices would be sustained only if actual crude oil supplies are disrupted, Goldman Sachs says, noting that gold is a now better play than oil amid the heightened geopolitical risk.

Early on Monday, the oil price rally continued, with Brent Crude prices exceeding US$70 a barrel for the first time since May last year. WTI Crude was also up, rising above US$64 a barrel, also the highest price level since May 2019.

On Sunday, the U.S. Embassy in Saudi Arabia warned the American community in Saudi Arabia “of the heightened risk of missile and drone attacks.”

“U.S. citizens living and working near military bases and oil and gas facilities and other critical civilian infrastructure, particularly in the Eastern Province and areas near the border with Yemen, are at heightened risk of attack,” the U.S. embassy said, acknowledging a higher risk to the oil facilities in Saudi Arabia.

President Trump also upped the ante, tweeting on Sunday that “should Iran strike any U.S. person or target, the United States will quickly & fully strike back, & perhaps in a disproportionate manner.”

By Tsvetana Paraskova for Oilprice.com