Market Surplus Drives New Dynamics

Goldman Sachs has signaled that oil prices are expected to decline later this year as a significant supply surplus takes shape. The investment bank maintained its 2026 average forecast at $56 per barrel for Brent and $52 for West Texas Intermediate (WTI), predicting a price bottom at $54 on Brent and $50 on WTI during the last quarter as OECD inventories expand.

Geopolitical Tensions Propel Volatility

Despite the anticipated surplus, ongoing geopolitical risks associated with Russia, Venezuela, and Iran are likely to inject volatility into the markets. The interplay between supply abundance and enduring political uncertainties underscores the complex global energy landscape, forcing investors and policymakers alike to navigate these challenges carefully.

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Policy Focus and Implications for Investors

Brent crude futures were reported around $63 a barrel, with U.S. WTI crude at $59, as of recent trading sessions. This follows a year marked by nearly a 20% decline in both benchmarks, the worst performance since 2020. Analysts note that U.S. policymakers remain committed to ensuring robust energy supplies and keeping prices relatively modest, a stance that is expected to temper further price increases before the midterm elections.

Outlook Through 2027 and Beyond

Goldman Sachs anticipates a gradual recovery in oil prices in 2027, projecting average prices of $58 for Brent and $54 for WTI. This revision comes on the back of modest upward adjustments in U.S., Venezuelan, and Russian supply estimates. Looking further ahead, the bank forecasts a substantial recovery later in the decade as demand picks up through 2040, with projections of $75 and $71 for Brent and WTI respectively between 2030 and 2035.

Strategic Recommendations

Given these market conditions, Goldman Sachs recommends that investors consider shorting the 2026Q3-Dec2028 Brent time-spread to articulate a view of the surplus. Additionally, the bank suggests that oil producers hedge against the potential downside in 2026 prices.