Goldman Sachs "tears up report": If the Strait of Hormuz does not "resume as scheduled" in the next few days, the "significant upside risk" in oil prices will quickly expand.

Goldman Sachs has overturned previous optimistic expectations, pointing out that the flow in the Strait of Hormuz has decreased by more than 90%, worse than assumed; the redirection of alternative pipelines is only 0.9mb/d, far below theoretical values; the supply shock is unprecedented. The upside risk of oil prices is rapidly expanding, and if there are no signs of recovery within this week, oil prices may break through $100 next week; if the slump continues in March, oil prices will surpass the historical peaks of 2008 and 2022. On March 7, according to news from the Wind Chaser trading platform, Goldman Sachs' commodity research team, in its latest oil report released on March 6, has quietly "overturned" its previous optimistic expectations - the bank's previous baseline scenario was based on the assumption that the flow in the Strait of Hormuz would "gradually return to normal in the next few days". As mentioned in a previous article by Wall Street News, Goldman Sachs' Chief Oil Strategist Daan Struyven predicted in a report on March 4 that the blocked crude oil transportation in the Strait of Hormuz would maintain its current extremely low level in the next 5 days, then recover to 70% of normal volume within two weeks, and achieve 100% full normalization after four weeks. However, the latest data shows that the reality is far more severe than expected. Goldman Sachs clearly stated in the latest research report: if there are no signs of the flow in the strait returning to normal in the next few days, oil price forecasts will be immediately revised. More importantly, the report points out that the upside risk is rapidly expanding and directly gives price judgments in extreme scenarios: If there are no solutions in sight this week, oil prices are likely to exceed $100 next week; if the flow in the strait remains low throughout March, oil prices (especially refined oil) will surpass the historical peaks of 2008 and 2022. The report points out that the upside risk of energy assets is accumulating at an unprecedented speed, and the four reasons given by Goldman Sachs are breaking the foundations of the previous "rapid recovery" assumption one by one. Reason one: the drop in flow in the strait is far worse than expected, actually worse than assumed Goldman Sachs estimates that the normal oil flow in the Strait of Hormuz is about 20 million barrels per day (20mb/d), with about 14 million barrels per day of crude oil and condensate, 4 million barrels per day of refined oil, and 2 million barrels per day of liquefied natural gas (NGL). The current actual data is shocking: the daily flow in the strait has decreased by about 90% from normal levels, a reduction of about 18 million barrels per day (18mb/d). This number is lower than the assumed "15% decrease (about 15% of normal levels)" in Goldman Sachs' baseline scenario for the week. In other words, the actual situation is even worse than Goldman Sachs' pessimistic assumptions. This means that the risks around the baseline scenario are further tilting towards "lower flow, lasting for a longer period". Reason two: the capacity of alternative pipelines for redirection is severely insufficient, and the actual redirection is only 0.9mb/d Faced with the blockade in the strait, the market had hoped for pipelines and alternative ports to fill the gap. Theoretically, the spare capacity of Saudi Arabia's east-west pipeline (leading to the Red Sea Yanbu port) and the UAE's Habshan-Fujairah pipeline (to the Gulf of Oman) is estimated to be less than 4 million barrels per day (3.6mb/d). However, actual tracking data from Goldman Sachs shows that in the past four days, the net redirected flow through the pipelines and Yanbu port (Red Sea, Saudi Arabia) and Fujairah port (Gulf of Oman, UAE) has only increased by about 900,000 barrels per day (0.9mb/d), far below the theoretical limit. The reasons for this huge discrepancy are multiple: - Attacks on Fujairah port and oil storage facilities this week directly hit alternative export capacity; - Local shortages of ship fuels (usually imported from the Persian Gulf through the Strait of Hormuz) have caused tankers to be unable to operate normally; - Attacks on pipelines in the past have further compressed redirection potential. This means that the market expectation of "pipeline backup" is severely overestimated, and the actual buffering capacity is extremely limited. Reason three: a quick solution is not necessarily imminent, shipping companies are in a wait-and-see mode Goldman Sachs found through communication with market participants that most shipowners are currently in a "wait-and-see" mode, with the main reason being the still very high physical risks in the strait. It is worth noting that Goldman Sachs's analysis excludes the assumption that "insurance costs" are the main reason for the sudden drop in flow. Data shows that some insurance can still be purchased, and from a pure economic point of view, crossing the strait remains profitable in the current context of sharply rising freight rates - even though the war risk surcharge has risen significantly (currently about 3%, the highest in history since the 7.5% during the Iran-Iraq war in the 1980s). This finding points to a more concerning conclusion: the core factor preventing ships from passing through is physical safety risks, not economic costs. As long as the physical risks are not eliminated, economic incentives, no matter how strong, cannot drive flow recovery. Goldman Sachs listed three possible paths for the recovery of flow in the strait: - Overall de-escalation of conflict (ceasefire or diplomatic resolution); - Strong escort protection provided by the United States for oil tankers; - Iran allows safe passage of oil tankers from specific sources/destinations (including China). From the statements of various parties (see table below), the expectations for the duration of the conflict range from 10 days to over a month, with huge differences, further exacerbating market uncertainty: Reason four: the scale of the supply shock is unprecedented, demand destruction pricing will arrive faster than historical Goldman Sachs emphasized that the scale of this supply shock has no comparable precedent in history. The total impact on Persian Gulf oil supply has reached 17.1 million barrels per day (17.1mb/d) - this number is 17 times the peak reduction in Russian production in April 2022. At the same time, the total volume of Persian Gulf oil exports has currently decreased by 74% from normal levels, leaving only about 6 million barrels per day. Goldman Sachs pointed out that due to the unprecedented scale of the shock, the market will start pricing in "demand destruction" faster than historical experience and simple models predict, for two reasons: - The rapid consumption of stocks: the larger the impact, the market will start pricing in demand destruction when inventory levels are still relatively high, rather than waiting for stocks to hit rock bottom; - Accelerating factors overlap: consumer hoarding behavior, and non-OECD countries cutting refined oil exports (such as China cutting oil product exports to ensure domestic supply), will further accelerate the consumption rate of OECD inventories. The essence of Goldman Sachs "tearing up the report": baseline assumptions are being pierced by reality The key to understanding this report is to contrast it with Goldman Sachs' previous optimistic expectations. According to a previous article by Wall Street News, previously, Goldman Sachs' strategy team went against the market turmoil and was bullish, believing that the current pullback was a buying opportunity, with one of the core support logics being the optimistic expectation of the Strait of Hormuz "returning to normal in four weeks". Goldman Sachs' Chief Oil Strategist Daan Struyven had set a path where flow in the strait would be maintained at about 15% of normal levels for an additional 5 days, then recover to 70% within two weeks, and achieve 100% normalization after two more weeks. Based on this assumption, Goldman Sachs raised its Brent crude oil second-quarter average price forecast to $76 per barrel, WTI to $71 per barrel, and raised its Brent fourth-quarter 2026 forecast from $60 to $66. However, this report on March 6 is actually Goldman Sachs publicly questioning its own assumptions with the latest data: - The actual flow (about 10% of normal levels) is lower than the assumption (15%); - The redirection of alternatives (0.9mb/d) is far below the theoretical potential (3.6mb/d); - A quick solution is not necessarily imminent; - The scale of the shock has exceeded all comparable historical situations. Goldman Sachs clearly stated that if there is no evidence of gradual normalization of flow in the strait in the next few days, oil price forecasts will be quickly revised. This is actually a warning to the market: a more aggressive upward revision report may come at any time. However, Goldman Sachs also pointed out in a previous report that if the U.S. escort plan or diplomatic efforts are successful and flow in the strait quickly recovers, the current risk premium will quickly evaporate, and Brent oil prices may face a significant drop of $12 to $15 per barrel. According to the report, as of March 6, 12 oil tankers have been attacked in the Strait of Hormuz and surrounding waters (from March 1 to 6), and so far there is no record of confirmed attacks on Asian-flagged oil tankers - this detail may be an important variable affecting the outcome of the situation. This article is translated from Wall Street News, edited by GMTEight: Chen Yufeng.