Goldman Sachs sees $25 war risk premium in Brent, forecasts $90 in December and $80 in 2027

Goldman’s estimate implies Brent is trading well above where supply and demand alone would put it, which leaves prices vulnerable to a sharp drop if the risk of escalation fades, and exposed to further spikes if the conflict widens. The forecast path points lower over time, with the bank expecting a shift into surplus from the fourth quarter to pull prices back toward $80 in 2027, a level consistent with UBS’s view that Brent will approach $80 next summer. Near-term support is likely to come from depleted inventories, including a US Strategic Petroleum Reserve at its lowest since 1982, and from investors using oil as a hedge for their stock and bond holdings. For inflation-sensitive markets, a fading premium would ease pressure on central banks and bond yields, while a renewed spike would reinforce the hawkish case.---Earlier:US strategic oil reserve falls to lowest since 1982 as Iran war release drains stocks---Goldman Sachs reckons about $25 of every barrel of Brent is a bet on the Iran war getting worse, and if that bet does not pay off, the bank sees prices drifting back toward $80.Summary:Goldman Sachs estimates spot Brent carries a risk premium of nearly $25 a barrel above its fair value, reflecting the risk of supply curtailment and inventory draws if the Iran war escalates.The bank raised its December 2026 Brent forecast to $90 a barrel from $85 and expects an average of $80 in 2027.Persian Gulf exports have recovered to roughly their 2025 average since late September, including an estimated 4 million barrels a day of untracked shipments.The global market was nearly balanced in September, with a deficit of 0.3 million barrels a day against 7.2 million in March, and Goldman expects a surplus from the fourth quarter.Near-record-low inventories, restocking demand and oil’s use as a portfolio hedge continue to support prices.Renewed escalation involving Iran or the Houthis that targets oil infrastructure is the main upside risk.Goldman Sachs says Brent crude is carrying a risk premium of nearly $25 a barrel above its estimate of fair value, as markets price in the threat that the Iran war could escalate and disrupt supply again, even as Gulf exports recover.In a research note published Friday, the bank raised its forecast for Brent in December 2026 to $90 a barrel from $85, while maintaining its view that prices will moderate to an average of $80 in 2027. Daan Struyven, co-head of global commodities research at Goldman Sachs, linked the premium to the possibility of further supply curtailment and inventory draws if the conflict intensifies.The bank’s underlying picture of supply has improved markedly. Exports from the Persian Gulf have recovered to roughly their 2025 average since late September, Goldman said, including an estimated 4 million barrels a day of so-called dark exports, meaning shipments that move outside normal tracking. It expects Gulf supply to keep rising as exporters adapt and expand transport capacity, particularly pipelines and tanker fleets.As a result, the global oil market has moved close to balance. Goldman estimates the deficit narrowed to 0.3 million barrels a day in September from 7.2 million in March, and it expects the market to move into surplus in the fourth quarter of 2026 and stay there through 2027. The bank describes that shift as the main driver of its expected price moderation.Demand has also taken a significant hit. Goldman said consumption fell by 3.3 million barrels a day in the third quarter from a year earlier, mainly in China, the Middle East and OECD Asia. It expects most of that loss to be recovered by late 2027, although a lasting shift toward electric vehicles in China is likely to leave demand below its pre-shock path.Several factors are keeping prices elevated in the meantime. Global inventories are near record lows, creating strong restocking demand, and investors have been buying oil as a hedge against moves in stocks and bonds. Emergency stocks have also been drawn down, with the US Strategic Petroleum Reserve falling last week to its lowest level since 1982.Goldman sees the balance of risks to its forecasts tilted higher. A renewed escalation involving Iran or the Houthis that targets ports, pipelines or oil fields in the region would represent a significant upside risk to prices, the bank said.Whether the premium fades will depend largely on the course of the conflict, with the pace of Gulf export recovery the key indicator to watch.  This article was written by Eamonn Sheridan at investinglive.com.