Goldman Sachs forecasts Strait of Hormuz flow normalization by late 2027
- Goldman Sachs predicts Strait of Hormuz flows will normalize by the second half of next year
- Crude oil prices are expected to stabilize at $80/bbl following flow normalization
- China faces a high probability of restricting product exports due to depleted domestic inventories
- Restricting US diesel exports could lead to refinery run cuts and higher gasoline prices
*this image is generated using AI for illustrative purposes only.
Goldman Sachs Group Inc. (NYSE: GS) analyst Nikhil Bhandari stated that oil flows through the Strait of Hormuz are likely to stabilize in the second half of next year. This normalization is expected to result in crude oil prices settling around $80/bbl.
In an interview with CNBC on Monday, Bhandari noted that oil flows out of the Middle East have reportedly exceeded pre-war levels. He explained that refineries outside the Middle East and Russia would reach maximum stretch levels by March next year. Conversely, refinery operations within the Middle East and Russia could take longer to recover due to infrastructure damage.
Market Dynamics and Pricing
The analyst highlighted that despite the stabilization of flow volumes, the crack spread, which represents the profit refineries earn from converting crude oil into fuel, must remain significantly higher than the usual $20 spread. Bhandari attributed recent increases in oil movement partly to dark fleet activity.
Policy Restrictions and Supply Risks
Bhandari addressed the potential impact of government interventions on fuel markets, specifically regarding diesel export bans considered by the Trump administration. While President Donald Trump later ruled out a ban, he signed an executive order allowing the temporary sale of red-dyed diesel for highway use to address high fuel prices.
Regarding global supply constraints, the analyst identified a high probability that China would restrict its product exports. He cited heavily depleted domestic product inventories within China as the primary driver for this potential shift in focus away from exports.
US Refinery Implications
In the United States context, Bhandari warned that restricting exports could inadvertently pressure gasoline prices upward. He noted that limiting the 1.5 million barrels of daily exports would likely force refinery run cuts, thereby reducing domestic supply availability.
Key Forecasts
| Factor | Forecast / Status |
|---|---|
| Flow Normalization | Second half of next year |
| Crude Oil Price Target | $80/bbl |
| Crack Spread Requirement | Much higher than $20 |
| China Export Risk | High probability of restrictions |
| US Daily Exports at Risk | 1.5 million barrels |
The divergence between volume recovery and price stability suggests that logistical bottlenecks and refining capacity constraints will continue to support elevated margins even as physical supply routes reopen.
How might sustained crack spreads above $20/bbl influence long-term investment decisions in global refining capacity expansion?
What specific policy mechanisms or trade agreements could the US leverage to mitigate gasoline price spikes if China restricts product exports?
To what extent will 'dark fleet' activity continue to distort official supply data and impact market transparency as flows normalize?
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