Goldman Sachs: How low can oil prices go?

According to the Zhitong Finance APP, last weekend, Goldman Sachs lowered its oil price forecast, incorporating economists' further downward adjustments to GDP expectations. Specifically, under two hypothetical conditions, Goldman Sachs predicts that Brent crude / West Texas Intermediate (WTI) prices will drop to $62 / $58 per barrel by December 2025, and to $55 / $51 per barrel by December 2026.

Goldman Sachs analysis is as follows:

First, the U.S. economy avoids falling into recession. The significant tariff cuts effective April 9 will limit the increase in the U.S. effective tariff rate to 15 percentage points. We expect oil demand to grow moderately by 300,000 barrels / 400,000 barrels per day in 2025 and 2026, respectively, based on our assumption of 0.5% GDP growth in the U.S. in the fourth quarter of 2025 and 1.7% global GDP growth.

Second, OPEC+ supply increases only moderately, for example, in the context of improved compliance. Specifically, we assume that OPEC+ will increase oil production by approximately 700,000 barrels per day over four months, with an increase of 411,000 barrels per day in May, followed by a slight increase of 130,000 to 140,000 barrels per month in June and July.

Three shocks bring downward risks to oil prices

Although oil prices may exceed our forecasts in the event of a sharp reversal in tariff policy, this commentary primarily focuses on the downward pressure on oil prices from GDP downside risks and OPEC+ supply upside risks.

Goldman Sachs uses a global oil market model to estimate the impact of three shocks on oil prices:

Typical U.S. economic recession: This shock assumes that the U.S. enters a recession starting in the second quarter of 2025, which is slightly milder than the historical median, with a spillover effect of U.S. economic slowdown on overseas economic growth at a typical rate of 20%.

Global economic slowdown: This shock assumes that U.S. GDP is the same as in a typical U.S. economic recession shock, but with a spillover effect of U.S. economic slowdown on overseas economic growth higher than the typical level, reaching 50%. For example, the uncertainty brought about by U.S. tariffs and related tightening of the global financial environment also exerts significant pressure on exports and investments outside the U.S.

Cancellation of OPEC+ daily production cuts of 2.2 million barrels: This shock assumes that OPEC+ completely cancels the voluntary production cut of 2.2 million barrels per day and continues to maintain the increase of 411,000 barrels per day after May, which will suppress non-OPEC supply.

Chart 1 shows the expected trend of Brent crude prices under Goldman Sachs' baseline scenario (solid blue line), alternative scenarios simulating the three shocks, and a more extreme comprehensive scenario. To simplify the analysis, we keep long-term oil prices unchanged, thus focusing on the term structure (i.e., spot price minus long-term price), while assuming no shocks to the risk premium.

Chart 1: Despite the drop in oil prices, the forward oil prices for 2026 still face downward risks

Assuming a typical U.S. economic recession shock, and based on our benchmark forecast for OPEC, we expect Brent crude oil prices to fall to $58/$50 per barrel by December 2025 and December 2026 (light solid blue line).

In a scenario of global GDP slowdown, keeping our benchmark forecast for OPEC unchanged, we expect Brent crude oil prices to fall to $54/$45 per barrel by December 2025 and December 2026 (solid red line).

Assuming our GDP benchmark forecast remains unchanged, and the OPEC+ daily production cut of 2.2 million barrels is fully canceled, we expect Brent crude oil prices to be $53/$45 per barrel in December 2025/December 2026 (dark solid green line).

Finally, in a more extreme and less likely scenario, where there is a global GDP slowdown and the OPEC+ production cuts are fully canceled (which would suppress non-OPEC supply), we expect Brent crude oil prices to drop to $46 per barrel by December 2025 and slightly below $40 per barrel by the end of 2026 (light solid green line).

We magnify the expected prices of Brent crude oil (Chart 2) and WTI crude oil under the above four alternative scenarios and another comprehensive scenario (U.S. economic recession, OPEC+ production cuts fully canceled) for December 2025/December 2026.

We can draw three conclusions:

Our oil price forecast for 2026, especially for the forward oil price in 2026, faces downside risks.

The impacts of global economic slowdown (i.e., shock 2, solid red line) and the cancellation of OPEC+ daily production cuts of 2.2 million barrels (i.e., shock 3, dark solid green line) on oil prices are similar, indicating that the downside pressure on oil prices from GDP risks and OPEC+ policy risks is roughly equivalent (although we do not make a judgment on the relative likelihood of these two shocks occurring).

It is unlikely that oil prices will sustain a significant drop below $40 per barrel for two reasons: first, U.S. shale oil provides increasingly solid price support at lower prices; second, a potential economic recession in the U.S. in 2025 is unlikely to be deep, partly because there are no significant financial imbalances in the private sector.

Chart 2: Despite recent declines in oil prices, the impacts of recession risks and/or the full cancellation of OPEC+ production cuts have not yet fully reflected in prices

Three-Party Trading Recommendation

Finally, Goldman Sachs recommends a new three-party trading strategy for macro investors and oil producers. For macro investors, this strategy can hedge against the risk of economic recession; for oil producers, it can hedge against the risk of falling oil prices.

Specifically, Goldman Sachs suggests selling Brent crude oil call options with a strike price of $75 per barrel for June 2026 and using the proceeds to buy a Brent crude oil put option spread with strike prices of $55 / $45 per barrel for June 2026. The reasons are as follows: first, high idle capacity limits the upside potential for oil prices; second, although the downside risk for forward oil prices is not extreme, it does exist, as U.S. shale oil provides increasingly solid price support when prices are low. As shown in Chart 3, if the price of Brent crude oil in June 2026 is below $59 per barrel in Goldman Sachs' baseline scenario, especially below $55 per barrel (this situation will occur in 5 out of 6 downside risk scenarios in Chart 2), the trade will yield a positive return.

Chart 3: Goldman Sachs recommends macro investors / oil producers hedge against economic recession / falling oil price risks through three-party trading

Goldman Sachs recommends selling Brent crude oil call options with a strike price of $75 per barrel for June 2026 and using the proceeds to buy a Brent crude oil put option spread with strike prices of $55 / $45 per barrel for June 2026 to hedge against the risk of falling oil prices