Goldman Sachs Forecasts Oil Could Reach $120 as U.S. Fuel Costs Surge

Goldman Sachs has issued a warning that escalating hostilities in the Persian Gulf and Red Sea could drive global oil prices above $120 per barrel, intensifying the financial strain on American consumers already grappling with soaring energy costs linked to the Iran war.

The investment bank’s projection signals an approximate 20% jump in the price of Brent crude, the international benchmark currently trading near $100 per barrel. Prices have climbed sharply over recent weeks as the Middle East conflict persists, marked by U.S. military strikes on three Iranian oil tankers on Saturday and Houthi rebel attacks on Saudi oil infrastructure.

On Tuesday, Brent crude touched $99.46 per barrel before settling slightly lower at $97.85. Over the past two months, the benchmark has surged from roughly $72 per barrel as optimism regarding a deal to reopen the Strait of Hormuz has diminished. The strategic waterway typically handles one-fifth of global oil supplies.

According to a report by political risk consultancy Eurasia Group, primary price drivers include the U.S.-Iran conflict in the Persian Gulf, the confrontation between Saudi Arabia and Houthi rebels in Yemen, and the ongoing Russia-Ukraine war. Additionally, a deficit in global refining capacity and sustained demand for refined products are exerting upward pressure.

A tracker from Brown University estimates that American households have spent an additional $100 billion on fuel between February 28, when the Iran war commenced, and September 8. Higher gasoline prices account for approximately $55 billion of this total, while diesel contributes the remaining $45 billion.

Diesel prices hit a record $5.90 per gallon on Labor Day, according to AAA data. This surge affects not only direct consumer spending but also raises transportation costs for groceries and retail goods, further complicating inflation concerns. Economists predict the upcoming Consumer Price Index report will show August inflation rising 3.3% annually, significantly exceeding the Federal Reserve’s 2% target.

Patrick De Haan, a petroleum analyst at GasBuddy, noted in a social media post that while gas prices typically decline during this season, there has been unusual volatility, particularly for diesel, which is critical to the U.S. economy.

Goldman Sachs’ base case scenario anticipates Brent crude falling to $85 per barrel and West Texas Intermediate settling around $80 per barrel by year’s end, representing a modest $5 increase from previous forecasts. The bank cited stable commercial fuel inventories and a slow recovery in Middle Eastern oil shipments as factors limiting further price spikes.

In contrast, Treasury Secretary Scott Bessent expressed optimism that the energy supply shock would subside once the conflict concludes. Speaking on Fox News, he suggested oil prices could drop to between $40 and $50 per barrel due to increased supply availability post-war.

However, Goldman’s analysts cautioned that the likelihood of prices rising remains higher than falling, particularly in the near term. Market indicators reflect this concern, with options implying a 25% probability that Brent will stay above $100 in March 2027, up from just 6% a month ago.

Eurasia Group analysts projected that oil prices will likely remain in the $85 to $105 range, stating they see little possibility of resolving the various regional conflicts driving the volatility.