Goldman Sachs lifts its oil estimate to $115 per barrel amid Russia & Ukraine conflict

Since the implementation of Western sanctions, Russian crude oil grades, which account for around 10% of the world oil supply, have been pummelling in physical markets.


Goldman Sachs boosted its one-month projection for Brent crude oil prices to $115 per barrel, up from $95, on February 28. The upward revision comes as tensions between Ukraine and Russia rise, with the latter facing severe Western sanctions.

As a result of the sanctions, several of Russia’s largest banks have been shut off from the SWIFT international payment system, causing serious disruptions to its shipments of all goods, from oil to grains.

Russian crude oil grades, which account for around 10% of the global oil supply, have taken a beating in physical markets. Because the sanctions are aimed at Russia’s banking institutions, Goldman Sachs analysts believe they will “exacerbate” the commodities supply shock.

“While details on the implementation of these additional sanctions have not been released, with carve-outs likely still allowing for energy and food trades, the hurdles that these sanctions will create for financial payments are likely to exacerbate the recent Russian commodity supply shock, already visible as Western and Chinese traders halting shipments,” added the analysts at the investment bank.

They also suggested that up to 4 million barrels of demand destruction were required to compensate for the loss of Russian supply on the global market.

According to analysts, the Organization of Petroleum Exporting Countries (OPEC) can react to the issue, but any action done by them is likely to come at the price of the global oil market’s spare capacity.

“While such an outcome becomes increasingly likely the more Russia is ostracized from the global economy, driving core-OPEC, Iran and the West closer together, it would nonetheless come at the expense of a complete depletion of the global oil market’s spare capacity, still warranting much higher oil prices,” they noted.

Significantly, oil prices rose again earlier today, with Brent crude jumping by $4.82, or 4.9%, to $102.75 per barrel at 10:28 GMT, after reaching a high of $105.07 in early trade.

West Texas Intermediate (WTI) oil in the United States was up $4.62, or 5%, to $96.21 a barrel after reaching $99.10 in early trade. “Growing concerns about disruptions to Russian energy supplies are pushing oil and gas prices up sharply,” said Commerzbank analyst Carsten Fritsch.