Institution: Global crude oil demand is about to recover 100 million barrels in 1 day, bullish oil to $90

Although Brent crude recently rose to a high of $85/b, the highest level in 7 years, Goldman Sachs recently raised its forecast
for the crude price.

From the supply side, Goldman Sachs believes that the tight supply in the oil market is not only cyclical, but also structurally undersupplied
.

On the demand side, global oil demand is now expected to exceed 99 million barrels per day
.
Goldman Sachs noted that oil demand will soon return to pre-pandemic levels of 100 million barrels per day
due to the rebound in Asia.

More importantly, oil demand this winter is likely to remain stable at pre-pandemic levels
.

In addition, the shift from natural gas to oil demand could increase oil demand by at least 1 million barrels per day, and current natural gas forward prices continue to stimulate oil demand growth
in the winter.

Goldman Sachs believes that if this situation continues, the price of Brent crude oil will reach $90 / barrel by the end of the year, and there are continued upside risks
.

However, Goldman Sachs also said that oil prices are not high enough to damage demand; Brent crude oil prices are expected to reach $110/b for the market to reach equilibrium in the first quarter of 2022
.

01Demand returns to pre-pandemic levels

Goldman Sachs has a short-term, demand-driven, cyclical bullish view on oil, with a year-end Brent crude price forecast of $90/b, while price risk is skewed to the upside
.

Its forecasts for oil price growth for both current and coming months are well above expectations from the International Energy Agency (IEA
).

Specifically, Goldman Sachs expects global demand to now exceed 99 million bpd, with the Asia-Pacific region driving most of the demand growth
.

In addition, demand in the United States and Canada continued to surge, while demand liquidity remained high elsewhere
.

So even if demand approaches the pre-pandemic level of 100 million bpd, Goldman Sachs sees plenty of room
for growth.

Goldman Sachs believes that while jet fuel demand remains 2.
5 million bpd below the same period in 2019, demand-side liquidity and the lifting of global travel restrictions still offer the possibility of demand growth, while economic growth in 2021-2022 remains strong
compared to the post-global financial crisis.

At the same time, despite the risks posed by the coronavirus to oil demand, especially the outlook for jet fuel, the global rollout of vaccination has increasingly avoided mass hospitalizations, suggesting that health systems may be protective
.

02Conversion of natural gas to oil demand

After an 18-month downturn in oil demand due to the pandemic, natural gas and oil (G2O) conversion technologies offer the possibility
of further growth in winter oil demand.

Ahead of the onset of winter, the market is experiencing a crisis of low natural gas and coal stocks, which could bring damage
on the demand side.
Natural gas spot and forward prices in Europe and Asia also continue to reflect significant oil demand conversion potential
.

Based on the average of four models assessing G2O impacts, Goldman Sachs estimates that the current oil demand conversion will generate 1 million b/d of additional oil demand, with upper and lower limits of 800,000 b/d and 1.
3 million b/d
, respectively.

This is higher than its previous baseline forecast of an additional 700,000 b/d from September to November, and there are persistent upside risks
to oil prices given the current low level of global oil inventories.

03The rise in oil prices has not yet caused a demand destruction

With supplies of many commodities constrained and inventories rapidly dwindling, energy markets such as coal, natural gas, electricity and zinc have begun to see demand-side disruptions
.

Goldman Sachs believes that despite similar constraints on the oil supply side and OPEC+ has been slow to provide additional supply to the market, oil prices are still too low to have any material impact
on demand.

Specifically, a 10% increase in oil prices after one quarter would reduce demand by 200,000 bpd, so oil prices would need to rise to $110/b to dampen demand and bring the market to equilibrium
in the first quarter of 2022.

Inventories will continue to decline
until the oil market runs a surplus in the second quarter of 2022.

As part of personal consumption expenditures, U.
S.
consumers are now spending on gasoline on par with 1999 levels, when Brent crude averaged $18 per barrel
.

Goldman Sachs noted that Brent crude prices need to rise to nearly $150-$200 a barrel before demand destruction will eventually bring the oil market back into balance, similar to what happened in 2008 and 1980
.

At the same time, the price of Brent crude oil would have to rise to $110/$125/$150 for gasoline spending as a percentage of consumers' personal income to reach peak levels in 2012, 1975-85 and 2008
, respectively.

Overall, there is still plenty of room for oil prices to rise before there is a substantial disruption to demand; The U.
S.
is still resilient to rising oil prices, contrary to
the summer of 2008.