Oil prices have already had a huge year in 2026.
But Goldman Sachs reckons they could still go a fair bit higher.
The investment bank says Brent crude could rise above US$120 a barrel in early 2027 if problems across the Middle East continue.
Brent is trading at around US$106 a barrel on Tuesday morning, up roughly 57% over the past year.
A big part of that rise has come as attacks around the Strait of Hormuz and Red Sea continue to make it harder to get oil out of the region.
And Goldman Sachs thinks prices could stay high for quite some time.
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Why could oil reach US$120?
A lot comes down to how quickly Gulf oil supply can recover.
Goldman Sachs believes Brent could rise above US$120 if production stays well below pre-conflict levels.
The bank estimates average output next year could still be around 4 million barrels per day below pre-war levels.
Goldman Sachs global commodities co-head Daan Struyven said:
Markets are increasingly pricing a prolonged Mideast conflict.
The intensity and geographical breadth of tanker attacks … will remain a key driver of whether Gulf oil exports recover and how quickly.
And we're already not that far away.
Crude reached US$109 a barrel last week, its highest level in around 5 months.
China could have a big say in what happens next too.
The country has cut crude imports by around a third while drawing more heavily on its large strategic petroleum reserves.
Goldman Sachs said how long China keeps dipping into those reserves could play a big role in how tight the global oil market becomes.
Why investors should care
Goldman Sachs said LNG markets across Asia and Europe are still tight, with only around 25% to 30% of pre-war Gulf energy exports restored.
If Middle East exports don't improve, the bank believes global LNG prices could rise by around 55%.
Coal demand is holding up too.
The International Energy Agency (IEA) recently forecast that global coal demand would rise 1.2% in 2026 to a record 8.94 billion tonnes.
Goldman Sachs said US coal-fired power plants are also closing more slowly than expected, as electricity demand continues to grow.
Where to from here?
If oil stays above US$100 a barrel, Woodside Energy Group Ltd (ASX: WDS), and Santos Ltd (ASX: STO) could benefit from higher realised prices.
But there is another side to it.
Fuel is a major cost for transport, manufacturing and plenty of other businesses.
If those costs keep rising, some of them will eventually find their way through to consumers.
That could make inflation even harder to bring down, especially if energy costs continue to stay high.
