Market Dynamics: The Impact Of Oil Price On Textile Industry Continues

Goldman Sachs, the "oil flag bearer", expects average global oil demand to hit record levels in the next two years against the backdrop of rising demand for aviation, transportation and infrastructure construction.

Damien courvalin, head of energy research at Goldman Sachs, said on December 17 that demand had reached a record high just before the emergence of omercon; At the same time, aircraft demand is increasing and the global economy is still growing. As you can see, oil demand will continue to record highs in 2022 and 2023.

This will bring oil prices to $100 at a time when supply growth is too slow to keep pace with demand.

Courvalin said that although the investment bank's basic forecast is that Brent crude oil prices will remain around $85 a barrel next year and 2023, oil prices are likely to break through the triple digits as higher drilling costs or unexpected supply shortages force prices to soar enough to destroy demand.

Up to now, Brent crude oil is 73.99 US dollars / barrel, which has fallen from the peak of 85 US dollars / barrel in October, with the intraday drop of 1.37%.

But this year, oil prices are still up more than 40%.

Goldman Sachs has always been bullish on oil, and even after OPEC + announced an increase in production earlier this month, it firmly believes that oil prices still have upward potential and will not undermine the ongoing structural bull market. Its forecast of the average price of Brent crude oil of US $85 per barrel in 2023 has "very obvious upward risk".

"Oil price must go up"

"In the face of strong demand, there is a clear shortage of supply. Oil prices have to go up to offset the higher cost of funding for funded projects," courvalin said in an interview on Friday.

From the supply side, he believes that, in the long run, as investors choose to support industries focused on ESG, the rise in upstream costs and financing costs is impacting output growth.

At the same time, due to the uncertainty of energy transformation and its impact on fuel use, investment in long-term oil projects has also declined.

On the demand side, courvalin believes that the current demand for gasoline, diesel and plastics has reached record levels, and the consumption is expected to reach a record high in 2022 and 2023; Global oil demand will grow steadily to about 106 million barrels per day by 2030, as the energy transition will be a gradual process.

Electric vehicles will weaken gasoline demand, but large trucks and aircraft still have a long way to go before decarbonization: for a market with nearly 100 million barrels a day of oil demand, the annual sales of electric vehicles are still a small part of nearly 6 million barrels a day, which is still less than 100000 barrels per day.

In terms of power fuels, mild temperatures this winter and increased coal production in major producers and consumers have limited LNG prices in Asia, courvalin said.

According to courvalin, government capital spending also supports demand, both to support economic recovery after the outbreak and to finance the energy transformation needed to address climate change. The growing emphasis on income inequality will also support commodities, as the poor tend to spend more on goods and energy.

He pointed out that if supply fails to keep up and the market can only be balanced by demand disruption, then oil prices could rise to $110 a barrel.

The economic impact of Omicron is limited

Speaking of the new strain of Omicron, courvalin believes that the recent selling of commodities has been overdone due to unnecessary concerns about the restrictions related to Omicron.

Courvalin believes that once asset managers reallocate funds next year, investors will buy on the cheap.

Courvalin said that despite an increase in new coronal infections in parts of the northern hemisphere during the winter and obstacles to economic recovery, the extent of the blockade is still limited, "and high-frequency mobile data also show its limited impact."

The recent drop of $10 in oil prices, equivalent to a reduction of 5 million barrels per day for three months, could be an overreaction. Because so far, governments seem to be responding to Omicron with larger and more frequent virus testing than with re blockades.

Courvalin pointed out that some pent up travel demand could revive as borders reopen.