Oil prices eased slightly on Thursday after a three-day rally, but Goldman Sachs warned that the market remains vulnerable to a fresh price spike as China is expected to return to the market to rebuild crude stockpiles while global emergency inventories have been significantly depleted by the Gulf conflict.
The bank said renewed Chinese buying, combined with continued disruption to shipments through the Strait of Hormuz, could tighten global supplies further. Goldman has also warned that Brent crude could rise above $110 a barrel if disruptions in the waterway persist, although it expects prices to moderate once normal flows resume.
Brent crude futures were trading at $84.53 a barrel on Thursday after climbing about 12% over the previous three sessions, while US West Texas Intermediate (WTI) crude slipped 0.3% to $79.36 a barrel as traders booked profits following the recent surge.
The modest decline came despite continued disruption to oil movements through the Strait of Hormuz, where military operations linked to the US-Iran conflict have sharply reduced tanker traffic through the strategic waterway that normally carries around one-fifth of global oil and LNG trade.
Goldman said one of the key developments to watch is China, which had largely relied on domestic inventories during the conflict instead of buying crude on the international market. As prices retreat from recent highs, Beijing is expected to replenish its strategic reserves, adding fresh demand to an already constrained market.
That comes at a time when the world's emergency supply buffers have been significantly eroded.
According to the International Monetary Fund, a crude supply deficit of around 4 million barrels a day between March and May was largely offset by releases from strategic petroleum reserves and commercial inventories. The International Energy Agency coordinated a record release of about 400 million barrels from emergency reserves during the Iran conflict, while China reduced refinery runs and drew on its stockpiles.
However, the IMF warned on Wednesday that much of that cushion has now been exhausted.
"What cushioned the initial blow this time is that energy markets had room to manoeuvre and absorb it," the IMF said. "Unless inventories are replenished, the world will start from a weaker position when the next shock comes."
Analysts said the combination of slowing tanker traffic through Hormuz, dwindling emergency reserves and the prospect of renewed Chinese buying has created a stronger structural floor under oil prices, even though Thursday's trading reflected some profit-taking after the recent rally.
