Goldman Sachs: Without the Iran shock, the fair value of crude oil should be slightly above $60

Investing.com - Goldman Sachs strategists say that, without the current supply shocks related to Iran, the fair value of crude oil could be around $60 per barrel. However, they also warn that a disruption of supplies through the Strait of Hormuz could push oil prices significantly higher, depending on the duration of the supply restriction.

Daan Struyven, Co-Head of Global Commodities Research at Goldman Sachs, stated in a report: “We estimate the fair value of crude oil based on the cumulative impact of Persian Gulf oil production and commercial oil inventories, considering policy responses, and assuming that without Iran-related shocks, the fair value of Brent crude is just over $60.”

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Despite recent increased market volatility, Goldman Sachs has not changed its core oil outlook. Struyven wrote: “Due to fluctuations in the flow data of the Strait of Hormuz and the overall uncertain situation, we have not revised our oil price forecasts (Q4 2026 Brent crude/WTI at $66/$62, 2027 at $70/$66), but we see significant upside risk if the supply disruption lasts longer.”

Struyven outlined two different approaches to assess oil price movements related to the Hormuz Strait disruption. The first approach evaluates prices after the uncertainty surrounding the supply interruption diminishes, while the second considers periods during the shock when the market prices in the significant uncertainty about the duration of supply loss.

Under the “post-shock” framework, the strategist estimates the fair value of oil by assessing the cumulative impact on Persian Gulf production and global oil inventories, while also considering policy measures such as strategic reserve releases. He assumes in his risk scenario that Persian Gulf exports face a net supply shock of about 15 million barrels per day.

Based on these assumptions, Struyven predicts that if Persian Gulf exports decline by 15 million barrels per day over 30 days, the fair value of Brent crude could reach approximately $76 per barrel. A longer disruption lasting 60 days could push the fair value up to about $93 per barrel.

However, during the supply disruption, if the market begins pricing in demand destruction to prevent inventories from falling below critical levels, oil prices could exceed these levels.

Goldman Sachs’ models indicate that if supply through the Strait of Hormuz remains severely restricted for most of March, oil prices could temporarily surpass the peaks seen during the 2008 and 2022 oil shocks. Struyven said this scenario would represent “the largest monthly supply shock on record,” forcing the market to rapidly price in demand destruction.

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