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Goldman Sachs predicts $140 oil as gas prices climb near $5 a gallon

The Bank of Wall Street now expects Brent crude oil prices to average $140 a barrel between July and September, up from its previous call of $125 a barrel. Brent is currently trading at around $120 a barrel.

Worse still, Goldman Sachs said summer retail gasoline prices are expected to climb to levels normally associated with $160 oil to reduce demand.

“A sharp price spike remains entirely possible this summer,” Goldman Sachs strategists wrote in a statement to clients.

Forecasts suggest the worst is far from over for consumers already struggling with high gas prices.

The national average price for regular gasoline jumped another five cents on Tuesday to a new record high of $4.92 a gallon, according to AAA. That’s up 30 cents over the past week and 62 cents over the past month.

“It’s driving me crazy. I’m watching this stuff right now – $5.99? Are you serious?” asked Cleavie Jordan, an MTA bandleader filling up her tank in Manhattan.

Thirteen states and Washington, DC already have an average gas price of $5 or more, with New Jersey, Massachusetts and Maine reaching that threshold on Tuesday. Ohio, Pennsylvania, Utah, and Idaho are only pennies away from $5.

Goldman Sachs is now asking for Brent oil to average $135 a barrel in the second half of this year and the first half of next year. That’s $10 more than the bank’s previous forecast.

“We believe oil prices need to rise further to normalize unsustainable levels of global oil inventories, as well as spare OPEC and refining capacity,” Goldman Sachs strategists wrote.

In March, Brent briefly hit a nearly 14-year high at $139.13 a barrel. But that turned out to be temporary as oil prices quickly retreated from there. Goldman Sachs is calling for a more sustained spike, where Brent would average $140 for the entire quarter.

That’s just below the $150 level that Moody’s Analytics economist Mark Zandi said would spell major trouble for the US economy.

“If oil prices hit $150, we’re going into a recession,” Zandi told CNN. “There is no way out.”

The bank did not say how high it expected gasoline prices to rise, saying only that oil prices needed to get so high they would cause demand to fall by 500,000 barrels a day to rebalance the market.

The U.S. Energy Information Administration also raised its forecast for oil, gasoline and natural gas prices on Tuesday, saying it no longer expects gasoline prices to come back down. below $4 a gallon by September.

“While we expect the current upward pressure on energy prices to ease, high energy prices will likely remain widespread in the United States this year and next,” the administrator said. of the EIA, Joe DeCarolis, in a statement.

For its part, the EIA now expects Brent crude to average $111.28 a barrel in the third quarter and $104.97 a barrel in the fourth quarter. That’s up from the EIA’s forecast a month ago for Brent at $103.98 and $101.66, respectively.

“We continue to see historically high energy prices due to the economic recovery and the fallout from Russia’s large-scale invasion of Ukraine,” DeCarolis said.

The good news is that the EIA does not expect $4 gasoline to be the norm until 2023. The agency predicts that gasoline will average $3.87 per gallon for the last three months of the year, although this is an increase from the previous $3.59.

For 2023, the EIA raised its forecast for gasoline to $3.66 on average, from $3.51 previously. But that would still be a big improvement over the expected $4.07 per gallon price this year.

The problem, according to the EIA, is that oil and gasoline inventories are low. The agency also noted that refinery output is relatively low compared to pre-Covid levels.

The EIA said its forecast incorporates the assumption that the European Union will follow through on its plan to ban imports of crude oil and petroleum products by sea from Russia. However, the forecast does not include potential restrictions on shipping insurance as details are not known.

And while the United States and OPEC+ are expected to increase production slightly, the EIA expects Russian production to fall by 1.1 million barrels per day between May 2022 and the end of 2023. That’s a steeper decline than the EIA had previously predicted.

Mary Cashion

The author Mary Cashion