Key insights
- Goldman Sachs estimates a significant drop in Gulf crude oil production and warns that a full recovery post-Strait of Hormuz reopening could be slower than expected due to transportation constraints and potential reservoir complications. While limited damage to oil fields and historical deployment of spare capacity offer some optimism, the risk of renewed hostilities poses a significant threat to oil production capacity, potentially impacting global energy prices and indirectly affecting US equities.
Investing.com -- Gulf crude oil production has fallen by an estimated 14.5 million barrels per day, or 57%, from pre-war levels, according to Goldman Sachs, which warns that even after the Strait of Hormuz reopens, a full recovery could take significantly longer than markets expect.
Analyst Daan Struyven said in a note to clients that production is likely to mostly recover within a few months of reopening, but only under key conditions, including no renewed strikes on oil assets and a full and safe reopening of the Strait.
Goldman identifies transportation capacity and well flow rates as the critical constraints, estimating that available empty tanker capacity in the Gulf has already fallen by around 50%, or approximately 130 million barrels, since the war began.
“The longer the closure, the slower the production ramp,” stated Goldman. The bank notes that forced curtailments can lead to reservoir complications requiring intervention and workover jobs before wells can be reopened, with procurement of depleted inputs such as drill pipes adding further delays.
On the more optimistic side, Struyven pointed to limited publicly reported physical damage to oil fields, constructive comments from Saudi Aramco's president and CEO in March suggesting a relatively quick ramp-up, and the historical tendency of Saudi Arabia and the UAE to deploy spare capacity to stabilize markets.
However, the firm flags significant tail risks. An average of external forecasts from the EIA and IEA points to a recovery of just 70% of lost production after three months of reopening and 88% after six months.
Goldman also warns that "the risk of large scarring to oil production capacity may pick up if hostilities were to resume," a scenario the firm does not treat as its base case but considers material.