Oil prices retreated on Thursday as renewed prospects for US-Iran talks provided some relief, even as Wall Street analysts warned that Brent crude could lose more than a fifth of its value if the geopolitical risk premium dissipates. Brent fell 1.1% to $114.10 a barrel, while West Texas Intermediate slipped 1.3% to $101.45.
Goldman Sachs projects Brent to decline to $90 by December, representing roughly 21% downside from Thursday's level. The bank estimates that about $27 of Brent's value reflects fears of future supply disruptions rather than current shortages, placing the underlying fair value near $85.
Why Goldman sees a $27 fear premium
Daan Struyven, Goldman's co-head of global commodities research, explained in the bank's Exchanges podcast that refiners are securing barrels ahead of potential shortages, while financial investors are buying oil to hedge against energy-driven market losses. This precautionary buying has supported prices despite recovering Middle Eastern crude shipments.
JPMorgan is similarly cautious. In research published Tuesday, commodities analysts including Natasha Kaneva estimated Brent's fair value at $94, concluding that geopolitical uncertainty better explains the nearly $20 gap than elevated shipping costs, although such premiums are difficult to measure precisely.
US petrol inventories expose weakening demand
Wednesday's US inventory report added another concern for investors betting on sustained high oil prices. Petrol inventories unexpectedly increased by 3.9 million barrels in the week ended 23 October, versus expectations for a 900,000-barrel decline. Implied petrol demand fell by 622,000 barrels per day, while overall petroleum-product demand declined by just over 1 million barrels per day.
Kpler's lead oil analyst Matt Smith highlighted the sharp pullback in petrol consumption even as demand for distillates strengthened. The International Energy Agency has also warned that persistently expensive fuel is damaging consumption, projecting global oil demand will decline by an average of 2.6 million barrels per day in 2026.
Could Brent fall to $90, or are supply risks still too high?
The bearish outlook faces one major obstacle: inventories remain critically low. US crude stocks declined by 1.9 million barrels last week, while distillate inventories fell by another 1.5 million barrels. The IEA estimates global observed oil inventories were 509 million barrels below end-February levels in September.
Goldman also warned that Persian Gulf exports of refined products, including petrol and diesel, remained at roughly 40% of their 2025 average. Struyven cautioned that renewed attacks on shipping routes or energy infrastructure could keep prices elevated despite improving crude supply.
A durable diplomatic settlement could bring JPMorgan's $94 valuation and eventually Goldman's $90 forecast into focus. However, fresh disruptions could sustain Brent above $110. Ultimately, oil's direction may depend on whether traders stop paying for a feared shortage or face another genuine supply shock.
This article is for informational purposes only and does not constitute financial advice.
