Goldman Sachs: The rise in oil prices is due to "short-term geopolitical shocks," reaching a peak of $90 per barrel, and falling back to $59 in the fourth quarter

Driven by the escalating tensions between Israel and Iran, oil prices have surged sharply recently, with Brent crude reaching a high of $78.5 during trading last Friday, marking one of the largest three-day increases in the past 30 years.

According to reports from the Chase Wind Trading Desk, Goldman Sachs stated in a report released on the 16th that the rise in oil prices is influenced by "short-term geopolitical shocks," and it is expected that oil prices could reach as high as $90 per barrel in the summer. However, as geopolitical risks ease, it is anticipated that prices will fall back to $59 by the fourth quarter of 2025.

The impact of rising oil prices on other assets depends on the driving factors: when oil prices rise due to improved economic growth, risk assets tend to perform well; whereas during oil price shocks (when cyclical stocks perform poorly), safe assets often perform better.

Under "short-term geopolitical shocks," oil prices are expected to reach a maximum of $90 per barrel in the summer

Goldman Sachs noted that last week, the tensions between Israel and Iran dominated market trends, leading to one of the largest three-day increases in Brent crude prices in the past 30 years, with a peak of $78.5 reached on Friday.

It is noteworthy that the put/call skew for two-month Brent crude options has reached its lowest level in over 20 years, indicating that market concerns about further increases in oil prices have reached an extreme.

The bank's commodities team has revised its price path forecast for the summer of 2025, incorporating a higher geopolitical risk premium. Analysts estimate that if Iran's export infrastructure suffers potential damage, leading to a reduction in Iranian supply of 1.75 million barrels per day for six months, Brent crude prices could spike to just above $90 per barrel.

However, looking beyond the summer, Goldman Sachs expects that under the assumption of uninterrupted oil supply from the Middle East, strong supply growth outside of U.S. shale oil will bring Brent crude prices back down to $59 by the fourth quarter of 2025.

As of the time of writing, Brent crude prices have risen by 1.52% to $74.

Significant divergence in cross-asset performance

The rise in geopolitical risks has had a significant impact on different asset classes. The stock market experienced a sell-off over the weekend, with the correlation between stocks and oil prices sharply turning negative.

Goldman Sachs analysis pointed out that the impact of rising oil prices on other assets depends on the driving factors: when oil prices rise due to improved economic growth, risk assets tend to perform well; whereas during oil price shocks (when cyclical stocks perform poorly), safe assets often perform better.

Over the past three days, the increases in gold and the Swiss franc have far exceeded historical levels. Goldman Sachs' foreign exchange team believes that if the geopolitical backdrop further deteriorates, the Swiss franc may continue to rise in the short term, despite facing domestic policy resistance. At the same time, central bank purchases continue to support gold prices.

Goldman Sachs believes that despite the dollar's decline last week, its intraday correlation with stocks turned negative, indicating that under sufficiently large geopolitical risk shocks, the dollar may trade more like a "safe asset." Goldman Sachs stated that the performance of oil-related assets such as energy stocks and credit products is largely consistent with oil prices, which further drives the excellent performance of oil-exporting countries relative to importing countries in the foreign exchange market. However, the U.S. breakeven inflation rate has become an exception: after diverging from oil prices by the end of 2024, it fell in June due to CPI data being lower than expected, further diverging from oil price trends