Goldman Sachs believes that the violent sell-off in oil prices may be short-lived due to the recession fears.
Goldman Sachs commodities strategist Damien Courvalin stated in a new note to clients that they believe this move has overshot. The current oil deficit is unresolved, with demand destruction through high prices the only solution to the problem as declining inventories approach critical low levels, according to our bullish view. In July, oil prices have dropped as Wall Street economists say that a 2023 recession is in the cards. On Tuesday, WTI Crude fell below $100 a barrel for the first time since May, placing further pressure on shares of crude sensitive stocks such as ExxonMobil, Chevron and Transocean. On Wednesday, oil prices were slightly below $96 a barrel, a price not seen since mid-April.
Oil prices are now down by more than 20% compared to the highs of more than $121 a barrel in early June.
The odds of a recession are certainly rising, but it is premature for the oil market to succumb to such concerns, according to Courvalin. The global economy is still growing, with the rise in oil demand this year set to surpass GDP growth, buttressed by the post-COVID re-opening in Asia-Pacific and the resumption of international travel. China's demand rebound from its aggressive lockdowns is ahead of our expectations, with its large stimulus helping local demand improve later this year. The pullback in crude oil is beginning to feed its way to relief at the gas pump for inflation battered consumers. The average price of regular gasoline in the U.S. is $4.77 a gallon, down from an all-time high of $5.03 a gallon on June 16.
The drop could be fading if oil prices reverse, especially with strong demand over the holiday, according to Patrick De Haan, Gasbuddy head of petroleum analysis. Americans are spending more than $100 million on gasoline per day than when prices peaked a few weeks ago, and that is a well-needed relief at a time when gas prices are near records. You can follow Sozzi on Twitter and LinkedIn.