Iran supply disruption could see Brent jump above $90/bbl

Oil prices have recently increased due to escalating conflict between Israel and Iran, raising concerns about potential supply disruptions in the Middle East. Goldman Sachs analysts suggest Brent crude could temporarily rise above $90 per barrel if Iranian supply is significantly impacted, but their base forecast, which assumes no supply disruptions, projects a decrease to $59 per barrel for Brent and $55 for WTI by the end of 2025. Extreme scenarios, such as disruptions to trade through the Strait of Hormuz, could push prices above $100 per barrel.

Analysis

Oil prices have recently experienced significant volatility, marked by a surge to over a four-month high before a partial retraction, with Brent futures at $73.70 and WTI at $70.85 per barrel. This volatility is primarily attributed to escalating geopolitical tensions between Israel and Iran, heightening concerns over potential supply disruptions in the Middle East. Goldman Sachs has incorporated an increased geopolitical risk premium into its forecasts, acknowledging the sharp rise in such risks. While their base case assumes no actual supply disruptions and projects a decline in Brent and WTI prices to $59/55 per barrel by Q4 2025 and further to $56/52 in 2026 due to strong non-U.S. shale supply growth, they present alternative scenarios with considerable upside. Specifically, a scenario involving a 1.75 million barrels per day reduction in Iranian supply for six months could see Brent peak just above $90 per barrel before receding. An extreme tail risk event, such as an extended disruption to shipping through the Strait of Hormuz—a chokepoint for nearly 20% of global oil production—could push prices beyond $100 per barrel, as OPEC+ spare capacity might be insufficient to compensate. The article also briefly notes an InvestingPro AI analysis suggesting WTI was not identified as a top undervalued asset.

Key Decisions for Investors

• Investors should closely monitor geopolitical developments in the Middle East, as these are the primary catalysts for potential short-term oil price spikes above $90/bbl, or even $100/bbl in extreme scenarios, as outlined by Goldman Sachs.
• It is crucial to balance the significant near-term upside risk from potential supply disruptions against Goldman Sachs' base-case forecast, which anticipates Brent/WTI prices declining to the $55-$59 range by late 2025, contingent on no major disruptions and robust non-U.S. shale output.
• Consider employing dynamic risk management or hedging strategies to navigate the current high-volatility environment, preparing for potential short-term price surges while remaining aware of the longer-term bearish structural outlook if geopolitical tensions de-escalate and supply normalizes.
• For investors specifically focused on WTI, the brief mention of an InvestingPro AI analysis not highlighting it as a top undervalued asset suggests a need for thorough independent valuation and due diligence.