Commodities Outlook: What’s Driving Oil, Gold, and Base Metals
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Geopolitical tensions, trade policies, and a slowing economy are driving significant volatility across gold, oil, and other commodities. So what's the outlook from here? I'm Alison Nathan, and this is Goldman Sachs Exchanges. For today's episode, I'm speaking with my colleague in Goldman Sachs research, Dan Stroyvin, co head of global commodities research and head of oil research, to talk about how recent events, notably the Middle East conflict and evolving tariff policies, are affecting the broader commodity and economic landscape. Dan, welcome back to the program. Thanks,
Allison.
So let's start with oil. I think the obvious place to start, oil prices have been very volatile amid these recent developments in The Middle East. But I think what's most striking to me is how quickly they actually retreated from the recent highs. And they're still at lower levels, and I think many people would have expected given the recent developments. So why is this?
Yeah. Absolutely. So we estimate that the geopolitical risk premium in oil, spiked to over $15 per barrel on on Sunday night just, just a week ago. And then twenty four hour laters, which is worth only a couple of dollars per barrel based on the fact that oil prices were nearly back to pre escalation levels. And also if you look at options markets, if you look at option markets and look at the probability of large supply disruptions, it's pretty low as as estimated by, by options markets, below 4%, or so. And the question is why why is that? I think the, you know, the the first reason is that,
Right. So a lot of forces working in the opposite direction. But just just to be clear, if we were to see an escalation of tensions, what would the upside look like?
Yeah. So, I mean, this the last few weeks are a are a reminder that, geopolitics can cause, you know, potentially very significant, price upside if we were to see actual disruptions. To be clear, our base case assumes no no disruptions. But we estimate that, crude could spike, above $90 per barrel if Iran supply were to drop sharply and in extreme tail scenario where the state of Hormuz were to be, disrupted for for us on a sustained basis, oil prices could spike above a $110 per barrel. To be clear, we think these are these are tail tail scenarios. But, yeah, the geopolitical geopolitical, si
So so that is the ups up upside tail. Upside in terms of prices, maybe downside in terms of the global economy. So beyond that really extreme scenario, do you see any lasting consequences from what has ultimately been this, you know, twelve day war, in terms of the commodity markets?
I think it was definitely scary for investors and policy makers going through it. At some point, if you looked at the poly market prediction market, the probability of a of a disruption of the Strait Of Hormuz spiked to 60%, at some point. And I do think that policymakers, especially in China, will likely double down on diversifying their supply of energy. In practice, that means continue to invest in power, electrifying the economy, coal as well. Basically, boost the supply of everything that you have, have at home. China continues to import about two thirds of its oil consumption from the re
in general, if you think about, like, the prospect of a big disruption, are you seeing oil producers broadly looking to increase supplies that were not as well? We've already seen that trend. Have we not? I mean, what what are you observing in terms of the oil supply trends yeah, amid these types of developments?
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