Goldman Expects Strait Of Hormuz Flows To Restart After 5 Days; Fully Normalize in 4 Weeks

With oil prices posting daily gains - Brent rose as high as $84 this morning, before paring gains and dropping back to $81 - even after Trump's decree to provide insurance and escorts, if needed, to ship transiting the Strait of Hormuz, we are starting to see bank after bank - which until recently were very bearish on oil due to "structural oversupply" - raise their price targets.  The latest among them is Goldman Sachs, which in a note from chief oil strategist Daan Struyven writes that the "the market processes mixed signals with some relief from a potential gradual recovery in Strait of Hormuz flows but also some renewed concerns as evidence of production cuts grows" and raised its Q2 average oil price forecast for Brent by $10 to $76/bbl (vs. $66 prior) and by $9 for WTI to $71 (vs. $62) for two reasons.

• First, the bank assume that 5 additional days of very low (15% of normal) Strait of Hormuz (SoH) exports followed by a gradual recovery over 28 days will lead in March to large OECD inventories declines and 200mb of estimated Middle Eastern crude production losses as storage approaches congestion.
• Second, lingering geopolitical uncertainty will continue to support the risk premium

The upgrades to Goldman's Brent/WTI year-end/Q4 2026 forecasts are more limited, rising to $66/62 (vs. $60/56 prior) and for 2027 to $70/66 (vs. $65/61 prior) as an assumed Q2 overshoot in Hormuz exports partly replenishes OECD stocks. The bank's forecast that the Brent spot price declines from $82 today to $66 in 2026Q4 reflects:

• gradual fading of the bank's $13 risk premium estimate
• a $3 decline in the fair value as OECD stocks start rising as the market returns to oversupply after the Strait disruptions fade.

This is how the bank's revised forecasts look now:

While Goldman writes that the risks to its upgraded price forecasts "remain significantly skewed to the upside" and include lengthier disruptions to Hormuz exports and damage to oil production facilities ("For instance, if Hormuz volumes were to remain flat for 5 additional weeks, Brent prices would likely reach $100, a level associated with larger demand destruction to prevent inventories from falling to critically low levels"), we would counter that much of this is now fully priced in, and we would underscore the bank's downside risk to prices which is "a faster normalization in SoH flows."

And it is here that the Goldman note is especially interesting, because it now assumes that Strait of Hormuz oil exports "remain flat at current levels (around 15% of normal) for an additional 5 days before gradually recovering to 70% in the next 2 weeks and then to 100% in the subsequent 2 weeks." Whether that means Trump's insurance/escort plan works, or China - which today is sending a diplomatic delegation to the Gulf to convinced Iran to unblock the Strait  - manages to convince Iran to resume flows, is unclear but the fact is that if and when downward momentum returns to oil, the CTA pile up will be historic and we expect Brent to plunge by $12-15 from the low/mid $80s the moment a resumption of ship traffic is observed in the SoH.

Going back to Goldman's price target increase - Brent higher by $10 to $76/bbl (vs. $66 prior and $76 forwards) and WTI by $9 to $71 (vs. $62) - here are some more details on the two reasons why, which Goldman attributes about $5 to each:

Estimating Production Losses: First, under Goldman's assumption of substantial March Hormuz disruptions, the bank estimates about 200mb of Middle Eastern crude production losses and large draws in OECD commercial inventories in March (-76mb month-over-month vs. prior assumption of 10mb builds).

Goldman also estimates visible crude landed storage capacity of around 600mb summed across Saudi Arabia, the UAE, Iraq, Kuwait, Qatar, and Iran, with just over 300mb spare landed crude capacity before the disruptions started. The estimate of 300mb of spare crude storage capacity corresponds under a full closure scenario to about 23 days of 13½ mb/d of “trapped” crude exports not redirected via spare pipelines,

Although Goldman only assumes a peak 85% drop in SoH export flows, estimated production losses already start well before 23 days for two reasons.

• First, there is a gradual reduction in production when crude inventory levels start approaching storage capacity limits.
• Second, because estimated spare storage capacity varies across exporters, estimated production losses start when the country with the smallest estimated storage buffer (i.e. Iraq) approaches congestion.

Lingering Geopolitical Uncertainty: Second, Goldman also assumes that lingering geopolitical uncertainty, about Iran and Russia-Ukraine, will continue to support the risk premium in 2026Q2.

Much more, including the bank's longer-term forecast, in the full note available to pro subscribers.