New York (CNN Business) – Higher oil and gasoline prices will need to rise further this summer to encourage new production and discourage consumption, according to Goldman Sachs.
Wall Street Bank now forecasts that Brent crude prices will average $140 a barrel between July and September, up from its previous forecast of $125 a barrel. Brent crude is currently trading around $120 a barrel.
Even worse, Goldman Sachs said that summer retail gasoline prices should rise to levels normally associated with $160 for oil to reduce demand.
“A significant price hike this summer is still entirely possible,” Goldman Sachs strategists wrote in a report to clients.
Expectations are that the worst is not over for consumers already dealing with rising gas prices.
The national average price of regular gasoline in the United States rose another five cents on Tuesday to a new record high of $4.92 a gallon, according to AAA. This is an increase of 30 cents from last week and 62 cents from last month.
“It’s driving me crazy. I’m looking at this now: $5.99? Are you serious?” asked Clive Jordan, an MTA driver filling her tank in Manhattan.
Already averaging gas prices in thirteen states and the US capital is $5 or more, while New Jersey, Massachusetts and Maine hit that limit on Tuesday. Ohio, Pennsylvania, Utah, and Idaho are just pennies away from $5.
Goldman Sachs now sees Brent oil averaging $135 a barrel during the second half of this year and the first half of the following. That’s $10 more than the bank’s previous forecast.
“We believe that oil prices need to rise further to normalize the unsustainably low levels of global oil inventories as well as OPEC and increased refining capacity,” Goldman Sachs strategists wrote.
In March, Brent crude rose briefly to a 14-year high of $139.13 a barrel. But it turned out to be rather temporary as oil prices fell rapidly from there. Goldman Sachs expects a more sustainable rally, with Brent crude averaging $140 for the entire quarter.
That’s just shy of the $150 level that Moody’s Analytics economist Mark Zandi warned would cause a major problem for the US economy.
“If oil prices go up to $150, we’re going to go into a recession,” Zandi told CNN. “No Exit”.
The bank did not specify how high it expects to increase gasoline prices, only saying that oil prices need to become so expensive that they cause demand to drop by 500,000 barrels per day to restore balance to the market.
On Tuesday, the US Energy Information Administration raised its forecast for oil, gasoline and natural gas prices and said it no longer expects gasoline prices to fall below $4 a gallon again in September.
“While we expect the current upward pressure on energy prices to subside, high energy prices in the United States are likely to continue this year and next,” IEA Administrator Joe Decarolis said in a statement.
The EIA now expects Brent crude to average $111.28 per barrel in the third quarter and $104.97 per barrel in the fourth. This is higher than the agency’s forecast a month ago for Brent, which averaged $103.98 and $101.66, respectively.
“We continue to witness historically high energy prices as a result of the economic recovery and the fallout from the all-out Russian invasion of Ukraine,” Decarolis said.
The good news is that the EIA doesn’t expect gasoline to be $4 until 2023. The agency expects gasoline to average $3.87 a gallon in the last three months of the year, although that’s an increase. gallons.
For 2023, the agency raised its gasoline forecast to an average of $3.66 per gallon, up from $3.51 previously. But that’s still a huge improvement over the $4.07 per gallon price expected this year.
The agency said that the problem lies in the decline in oil and gasoline stocks. The agency also noted that refinery production is relatively low compared to pandemic levels before Covid-19.
The agency said that its forecast includes the assumption that the European Union will comply with its plan to ban imports of crude oil and petroleum products by sea from Russia. However, the forecast does not include the potential limitations on shipping insurance because the details are unknown.
While the United States and OPEC+ are expected to raise production modestly, the agency expects Russia’s production to decline by 1.1 million barrels per day between May 2022 and the end of 2023. This is a sharper decline than the agency’s estimates. I was expecting earlier.