Iran War Squeezes Oil Supply, But Demand Collapse Keeps Prices in Check: Goldman Sachs

Goldman Sachs has warned of significant two-sided risks to global oil prices, with weakening demand potentially offsetting the impact of supply disruptions caused by the ongoing conflict involving Iran. The investment bank said that while reduced Middle East oil supplies could push prices higher, evidence of declining consumption in major economies is creating downward pressure on the market. The assessment highlights growing uncertainty for energy traders and policymakers as geopolitical tensions continue to reshape global oil flows.

According to a research note dated May 31, Goldman Sachs analysts led by Daan Struyven said recent oil sales data from China and Western Europe suggest demand may be weaker than previously estimated. The analysts calculated that global oil demand could be around two million barrels per day lower than their existing forecasts for April. Such a decline would create roughly $10 per barrel of downside risk to the bank’s fourth-quarter Brent crude forecast of $90 per barrel.

The global oil market has been heavily affected by the Iran conflict, which has disrupted energy shipments through the strategically important Strait of Hormuz. Reduced exports from Persian Gulf producers have forced the shutdown of millions of barrels of daily production, tightening global supplies. As a result, Brent crude prices have surged by more than 25 percent since the conflict began in late February, increasing costs for consumers and industries worldwide.

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Goldman Sachs noted that higher oil prices are already beginning to affect consumption patterns. Demand destruction has become particularly visible in sectors such as aviation and petrochemicals, where fuel costs play a major role in operating expenses. The bank said actual end-use demand may have fallen more sharply than expected as businesses and consumers respond to sustained increases in energy prices.

Further signs of weakening demand are emerging from China, the world’s largest crude oil importer. Consultancy Energy Aspects estimates that China’s oil imports could fall to approximately 10.9 million barrels per day this year, a level not seen since the pandemic period. The forecast suggests that structural changes in consumption and slower economic activity may continue to weigh on global energy demand despite supply constraints.

Despite concerns about weakening consumption, Goldman Sachs cautioned that prolonged disruptions to Middle Eastern oil production remain a major upside risk for prices. Brent crude traded near $93 per barrel on Monday after closing at a six-week low on Friday, supported by optimism surrounding potential diplomatic progress between the United States and Iran. Market participants are expected to closely monitor both geopolitical developments and demand trends in the coming months as they assess the future direction of oil prices.

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