Oil prices are back in the spotlight, and Goldman Sachs thinks they could stay higher for longer than previously expected.
Brent crude is trading around US$97 a barrel today, while West Texas Intermediate (WTI) crude is near US$93.
That puts oil close to its highest level in around 3 months amid renewed fighting in the Middle East.
And despite some signs that supply conditions are improving, Goldman Sachs has now lifted its oil price forecasts for 2027.
So, how high does the investment bank think oil could go?
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Goldman lifts its forecast
According to The Australian, Goldman Sachs co-head of global commodities, Daan Struyven, now expects Brent crude to average around US$80 a barrel next year.
That is US$5 higher than the bank's previous forecast, although it's still well below the US$97 level Brent is trading at today.
The reason Goldman isn't expecting oil to stay this high is that the hit to global supply has not been quite as bad as first feared.
Commercial oil inventories in developed economies have "barely drawn" since the fighting began. Instead, much of the shortfall has been covered by strategic reserves, oil already at sea, and stockpiles in China.
There have also been signs that production is recovering.
In April, output from Gulf producers was around 14.3 million barrels per day below pre-war levels. By July, Goldman estimates that gap had narrowed to around 8 million barrels per day.
Oil could still go much higher
Keep in mind, there's still plenty that could send oil prices above Goldman's base case.
Around 7 million barrels per day of crude oil and refined products reportedly continue to move through the Strait of Hormuz.
That makes any further disruption to the important shipping route something investors will be watching closely.
Goldman's own scenarios show just how wide the range of possible outcomes still is.
If Gulf production continues to be heavily disrupted, the bank believes Brent could climb above US$120 a barrel.
On the other hand, if supply conditions improve faster than expected, prices could fall back into the low US$60s.
Not only that, but there could also be some relief later on. New pipelines are expected to come online in late 2027, which should make it easier to move oil around the region.
What does it mean for investors?
Oil has already had a massive run.
Trading Economics shows WTI crude has climbed roughly 49% over the past 12 months, while Brent is up around 47%.
That has been a big tailwind for oil producers, including a number of ASX-listed energy stocks such as Woodside Energy Group Ltd (ASX: WDS) and Santos Ltd (ASX: STO).
But with Brent now trading around US$97 a barrel, Goldman's US$80 forecast suggests a decent pullback could be coming next year.
Obviously, that could weigh on oil stocks, so I'd be cautious about chasing ASX energy shares after the recent rally.
