Goldman Sachs expects a $75 per barrel floor under Brent Crude prices that is unlikely to be breached due to the current macroeconomic fears of a U.S. recession.
Oil prices slumped by 6% in the past few days, dragged down by weaker-than-expected jobs data in the U.S. on Friday, which sparked a massive selloff in equity markets globally and in risk assets, including crude oil.
Early on Tuesday, Brent Crude prices were down by 0.43% on the day to $75.96 as of 8:37 a.m. EDT, following two consecutive daily declines on Friday and Monday.
Recession fears triggered an exit and added to perceived weak Chinese oil demand to weigh on the petroleum futures.
However, Goldman Sachs says that the recession risk is still limited, demand in the West and India remains strong, and the speculative positioning of traders is very low. All these factors support the investment bank's view that oil will find support in the coming weeks.
"While the increase in recession risk following the weak U.S. July employment report and the impact of volatile financial conditions on oil demand further skew the risks to our $75-90 range for Brent prices to the downside, especially in 2025, our base case remains that oil prices will find support in coming weeks," Goldman Sachs analysts wrote in a note dated Monday.
Goldman put out a $75-$90 range to its Brent forecast earlier this year.
"Brent crude touched its USD 75 floor before bouncing back with focus on geopolitical developments and OPEC+ response to the latest drop," Saxo Bank analysts wrote in a note early on Tuesday.
According to ING commodities strategists Warren Patterson and Ewa Manthey "Investors have been exiting commodities in recent weeks, highlighted in positioning data and this has continued in recent days."
"ICE data shows that aggregated open interest in ICE Brent has fallen by more than 8% since mid-June. This souring in speculative appetite comes despite oil fundamentals still looking supportive," they wrote in a Tuesday note.
By Charles Kennedy for Oilprice.com
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