Goldman Sachs says oil’s recent decline will likely be short-lived.
Goldman Sachs commodities strategist Damien Courvalin said in a note, “We believe this move has overshot. While risks of a future recession are growing, key to our bullish view is that the current oil deficit remains unresolved, with demand destruction through high prices the only solver left as still declining inventories approach critically low levels.”
Oil prices have been dropping as investors came to terms with the increased probability of a recession produced by the Fed tamping down inflation. West Texas Intermediate dropped below $100 per barrel for the first time since May on Tuesday, This strained stocks sensitive to crude prices, such as ExxonMobil, Chevron, and Transocean. On Wednesday, oil dropped below $96, the lowest it has been since April.
Oil has now fallen more than 20% off its highs of over $121 per barrel in June.
Courvalin said, “While the odds of a recession are indeed rising, it is premature for the oil market to be succumbing to such concerns. The global economy is still growing, with the rise in oil demand this year set to significantly outperform GDP growth, buttressed by the post-COVID re-opening in Asia-Pacific as well as the resumption in international travel. In addition, China’s demand rebound from its aggressive lockdowns is coming in ahead of our expectations, with its large stimulus further helping local demand improve later this year.”
The drop in crude has begun to translate into relief at the pump for consumers, as gas has dropped from an all-time high in June of $5.03 pre gallon, to $4,76 per gallon.
Patrick De Haan, Gasbuddy head of petroleum analysis said. “While we may see prices decline into this week, the drop could fade soon if oil prices reverse, especially with strong demand over the holiday. For the time being, Americans are spending nearly $100 million per day less on gasoline than when prices peaked a few weeks ago, and that’s well-needed relief at a time when gas prices remain near records.”
