Brent crude oil price forecast to hit $94

The Brent crude oil price continued its downward trend on Monday even as Chinese demand continued rising. It dropped to a low of $72.50, which was a few points above last Friday’s low of $71.42. It has fallen by over 12% this year. Similarly, West Texas Intermediate (WTI) slipped to a multi-month low of $66.

Goldman Sachs downgrades oil

Brent crude oil dropped on Monday after analysts at Goldman Sachs (NYSE: GS) downgraded their earlier view of its prices. In a note, the analysts said that oil prices will not jump to $100 this year. Instead, their estimate, for now, is that prices could jump to about $94.50, which is more than 35% above the current level.

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Goldman Sachs attributed the new downgrade to the ongoing banking crisis, which will lead to a hard landing in the global economy. The analysts wrote that:

“Oil prices have plunged despite the China demand boom given banking stress, recession fears, and an exodus of investor flows. Historically, after such scarring events, positioning and prices recover only gradually, especially long-dated prices.” 

Oil demand from China has been growing since the country ended its Covid-zero strategy. Most of this oil is coming from Russia, Middle East, and the United States. Analysts believe that China’s demand will remain elevated in the coming months.

A key risk for oil is that many developing and emerging market countries are facing a major dollar shortage as the Fed continues shrinking its balance sheet. As such, countries, especially in Africa and Asia are struggling to import oil, which is affecting the overall demand.

Brent crude oil price has slumped even as the dollar has lost its shine. As I wrote in this article, the US dollar index has dropped to about $104 this week. Historically, the US dollar tends to have an inverse relationship with crude oil.

Brent crude oil price forecast

Oil chart by TradingView

The daily chart shows that crude oil prices have been in a strong bearish trend in the past few months. This decline culminated in oil dropping below the lower side of the triangle pattern on March 13. Oil has also moved below all moving averages while the Relative Strength Index (RSI) has moved to the oversold level.

Therefore, there is a likelihood that oil will likely continue falling as it moves to the key support at $70. A move above the key resistance at $76 will invalidate the bearish view.