Bloomberg: Oil could hit $120 as Middle East shipping risks escalate

Oil prices could surge to as much as $120 a barrel if attacks on shipping in the Middle East intensify, sid Goldman Sachs, which has recommended investors consider natural gas and diesel as alternative ways to hedge against escalating geopolitical risks, Bloomberg reports.

“Events over the last few days do suggest that the risk of shipping disruptions broadening and intensifying is an important one,” Daan Struyven, co-head of global commodities research at Goldman Sachs, said.

Crude prices have climbed to their highest level since July as the United States and Iran remain locked in a standoff over the Strait of Hormuz. In recent days, Washington has attacked Iranian tankers, while Tehran declared a new restricted zone outside the strategic waterway. US naval forces have also continued to blockade Iranian ports while escorting vessels operated by other oil-producing countries.

Goldman Sachs has set an upside scenario of $120 a barrel for crude, while Struyven said the bank sees a downside target of $80 if exports from the region return to normal. Brent crude was last trading near $97 a barrel.

The conflict, which has now lasted more than six months, has pushed up prices across a broad range of energy markets, with natural gas and refined petroleum products gaining more than crude. Diesel prices have more than doubled this year.

“While we see meaningful upside to crude oil prices, we do recommend to investors to hedge geopolitical risks by going long in global natural gas and refined-oil products,” Struyven said. “The supply shocks are bigger than in the crude market.”

China is expected to continue serving as a “stabilizing force” in the crude market by curbing imports in response to elevated prices, Struyven said. However, he noted that China is not playing the same role in natural gas and refined petroleum products.

By Vafa Guliyeva