Oil Prices Surge Above $100 as $120 Scenario Becomes Plausible

Oil prices have surged to near-record levels, with Brent crude trading above $100 a barrel. The price increase has been driven by concerns about prolonged disruption to Persian Gulf exports due to attacks on shipping.

Major banks such as Goldman Sachs and HSBC are now modeling scenarios where Brent reaches $120 a barrel, which would have significant consequences for the economy and financial markets.

Goldman Sachs has raised its year-end Brent forecast to $90 from $80, while warning that a more severe outcome remains possible. The bank sees buffers from inventories, alternative pipelines, and oil moving through less visible channels, but these may not be enough to limit the scale of the shortage.

The International Energy Agency expects global oil demand to decline by about 1.6 million barrels a day in 2026 due to elevated fuel costs and disrupted trade. Naeem Aslam, chief investment officer at Zaye Capital Markets, notes that 'supply tightness supports prices, but demand destruction can cap the upside if crude remains elevated for too long.'

Financial markets may react before physical oil demand fully adjusts, with the S&P 500 and Dow falling on Wednesday as Brent moved through $100. The US 10-year Treasury yield rose to 4.84%, its highest level since 2023, as investors weighed the inflationary consequences of another energy shock.