Goldman Sachs’ Contrarian Bullish Logic: The Strait of Hormuz Will Resume Passage in 5 Days, 70% Recovery in 2 Weeks, 100% Recovery in 4 Weeks

Amid global market turbulence, Goldman Sachs is defying the trend and remains bullish, viewing the recent market pullback as a buying opportunity rather than the beginning of a long-term bear market. This optimism is largely based on the institution's expectations for the "full recovery" of flows through the Strait of Hormuz within four weeks.

Led by Peter Oppenheimer, the Goldman Sachs strategy team wrote in a report on Wednesday that although risk assets are facing "significant headwinds" due to concerns from the Middle East war and disruptive impacts from AI, the resilience of economic fundamentals and strong corporate earnings growth mean that the depth and duration of this pullback will be limited.

Goldman's optimism about global markets is largely built on expectations for a swift repair of the energy supply chain.

Goldman Sachs chief oil strategist Daan Struyven expects that crude oil shipments impeded at the Strait of Hormuz will remain at currently depressed levels for the next five days, then recover to 70% of normal volume within two weeks, and achieve 100% normalization within four weeks.

Strait Flow Recovery Path and Storage Pressures

Goldman Sachs has set a specific timeline for the resumption of flows through the Strait of Hormuz. The firm assumes that oil exports through the Strait will remain at their current level (about 15% of normal) for an additional five days, gradually recover to 70% over the next two weeks, and reach 100% in the following two weeks.

Against the backdrop of export disruptions, Middle Eastern oil-producing countries are facing severe storage pressures. Goldman Sachs estimates that Saudi Arabia, the UAE, Iraq, Kuwait, Qatar, and Iran collectively have about 600 million barrels of available onshore oil storage, but just over 300 million barrels of idle capacity prior to the disruption. In a total shutdown, this idle capacity could accommodate only about 23 days of "stranded" crude oil.

The report emphasizes that even if Strait exports only fall by 85%, substantial production cuts will occur before the 23-day deadline is reached. As oil inventories near storage limits, production will be forced to gradually decrease. Countries with less storage buffer, like Iraq, will encounter system congestion and be first to cut output at an earlier stage.

Supply and Demand Expectations Push Q2 Oil Prices Higher

Multiple investment banks, previously pessimistic on oil prices due to "structural oversupply," have recently begun raising their target prices. Daan Struyven also noted in his latest report that the market is digesting mixed signals: partial recovery of strait flows is bringing some relief, but mounting evidence of output cuts has renewed concerns.

Based on these assessments, Goldman Sachs raised its Q2 Brent crude oil average price forecast by $10 to $76 per barrel, and its WTI forecast by $9 to $71 per barrel.

The report notes that the forecast upgrades are mainly due to two reasons: first, the blockade of strait exports will lead to a sharp decline in commercial inventories among OECD countries, and an estimated reduction of 200 million barrels in Middle East crude output in March; second, persistent geopolitical uncertainty will continue to support the risk premium.

Long-term Price Reversion and Bilateral Risks

Despite the strong short-term support for oil prices, Goldman Sachs' adjustments to long-term price forecasts are relatively minor.

The firm raised its forecast for Brent crude oil in Q4 2026 from $60 to $66 per barrel, and its 2027 forecast from $65 to $70. Goldman Sachs expects that as disruption effects fade, the market will return to a state of structural oversupply, and Brent spot prices will fall from the current $82 to $66 by Q4 2026. This pullback reflects the gradual disappearance of a $13 risk premium, as well as a $3 decline in fair value.

Goldman Sachs warns that current price forecast risks remain significantly skewed to the upside. For example, if flows through the Strait of Hormuz remain depressed for an additional five weeks, Brent prices could reach $100 in order to trigger large-scale demand destruction and prevent stockpiles from falling to critical levels.

However, downside risks should not be overlooked. Market analysis indicates that if Trump's escort plan or multilateral diplomatic efforts prove effective and facilitate faster-than-expected recovery of strait flows, the current risk premium will evaporate quickly. Once the resumption of shipping traffic is observed, Brent crude oil prices could plunge by $12 to $15.