Goldman Sachs Bullish On Crude Oil With Israel, Hamas At War, Projects Brent Crossing $100

Global financial markets are kicking off the week in reaction to the geopolitical shock of an escalation in the conflict between Israel and Hamas, the militant Islamist group that governs in the Gaza Strip.

The Middle East once again finds itself embroiled in conflict, with immediate repercussions reverberating in the oil market. WTI crude oil experienced a sudden surge of 4%, continuing to trade near $85 per barrel at 8 a.m. ET, making it the asset most responsive to the emerging Israeli-Palestinian crisis.

Analysts seem to be leaning toward a bullish outlook on oil prices, as our previous coverage has indicated.

Goldman Sachs has offered its perspective on the matter, explaining how this new crisis in the Middle East could disrupt factors that might have eased the tight supply condition in the oil market.

Chart: Crude Oil Prices Open 4% Higher Monday

US-Saudi Deal Now In Jeopardy: Goldman Sachs

“The escalating conflict in Gaza reduces the likelihood of a near-term normalization in Saudi-Israeli relations,” Goldman Sachs energy analyst Daan Struyven said in a Sunday note.

On Friday, rumors circulated about a potential agreement between Saudi Arabia and the United States that would increase oil production and Saudi recognition of Israel in exchange for Washington’s defense support.

Goldman Sachs now anticipates that Saudi Arabia will gradually scale back the extra 1mb/d production cut by the first quarter of 2025. The likelihood of Saudi crude production remaining steady at 9mb/d in 2024 now appears more probable than before the weekend, the analyst said.

Such a scenario would further boost the already bullish stance by Goldman Sachs on crude oil prices. The firm’s baseline scenario predicts Brent crude rising to $100 per barrel by June 2024. With the risks of tight supply from Saudi Arabia, Brent could potentially close the year at $104, Struyven said.

Iranian Oil Supply Risks Resume

Goldman Sachs said the conflict in the Gaza Strip will have a detrimental impact on projections for Iranian oil production.

According to Goldman’s forecasts, Iran’s crude production in 2024 is expected to reach 3.25mb/d, still 0.6mb/d below the production level Iran achieved in the first quarter of 2018, before the U.S. withdrew from the Joint Comprehensive Plan of Action.

Goldman estimates that any 100kb/d decline in Iran’s 2024 production compared to the baseline would mechanically raise the end-2024 Brent oil price by just over $1/bbl.

ETFs Affected By Israel-Hamas Conflict

The following exchange-traded funds that could potentially be affected by the new geopolitical shock:

1. United States Oil Fund USO: This ETF is likely to be influenced by fluctuations in crude oil prices resulting from the Middle East conflict, as it tracks the price movements of WTI crude oil.
2. iShares MSCI Saudi Arabia ETF KSA: Given the potential impact on Saudi-Israeli relations and their significance in the oil market, this ETF, which tracks the performance of Saudi Arabian stocks, may see volatility.
3. VanEck Israel ETF ISRA: This ETF focuses on Israeli stocks, and its performance could be directly affected by the ongoing conflict in the region.
4. ARK Israel Innovative Technology ETF IZRL: As it invests in Israeli technology companies, this ETF may experience volatility depending on how the conflict affects the Israeli tech sector and broader market sentiment.

Read now: S&P 500, Nasdaq Set For Bleak Start To Week As Middle East Tensions Dampen Risk-On Mood: Earnings, Inflation Data In Focus

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