WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange roared higher Wednesday after major banks and trading houses forecasted oil prices will need to go higher this summer to normalize unsustainably low levels of global oil inventories and to incentivize production from OPEC+ nations and producers outside the bloc with the decline in Russian supplies adding pressure on an already tight global oil market.
Goldman Sachs economists forecasted Tuesday oil prices will surge above $140 barrel (bbl) this summer, with a gradual recovery in Chinese demand and precipitous drop in Russian oil production adding to the pressure on already low global supplies.
"A large spike in prices remains quite possible this summer, when demand seasonally reaches its peak," said analysts at Goldman Sachs.
Analysts with the investment bank said summer retail gasoline prices will need to spike to levels normally associated with $160 bbl crude oil to curtail demand.
U.S. average retail gasoline prices jumped another 5 cents on Tuesday to a fresh record $4.92 gallon, according to AAA. That's up by 30 cents over the past week and 62 cents in the past month. U.S. Energy Information Administration on Tuesday also boosted its projections for oil, gasoline, and natural gas prices, saying it no longer expects gasoline prices to tumble back below $4 gallon by September.
Next, oil traders will parcel through weekly inventory data in the United States where commercial crude oil inventory currently stands some 15% below the five-year average.
The American Petroleum Institute reported Tuesday afternoon commercial crude oil stocks rose 1.845 million bbl last week versus calls for inventories to have dropped 1.9 million bbl. Stocks at the Cushing, Oklahoma, hub -- the New York Mercantile Exchange delivery point for the West Texas Intermediate futures contract -- dropped 1.839 million bbl. The data also showed gasoline stockpiles rose 1.821 million bbl in the reviewed week, more than six times estimates for a 300,000 bbl build. Distillate inventories posted a 3.376 million bbl build, more than four times calls for an increase of 800,000 bbl.
Against these headwinds, World Bank downgraded its outlook for global economic growth this year, pointing to the devastating impact of Russia's war in Ukraine, the prospect of widespread food shortages and concern over the potential return of "stagflation" -- a mix of high inflation and sluggish growth unseen for more than four decades.
"For many countries, recession will be hard to avoid," said The World Bank President David Malpass, adding "faster-than-expected tightening of financial conditions could push some countries into the type of debt crisis seen in the 1980s."
The World Bank slashed its global economic growth forecast to 2.9% this year, down from 4.1% seen in early January. The bank doesn't expect a much brighter outlook in 2023 and 2024 either, with annualized growth of just 3% for both years. For the United States, The World Bank slashed its growth forecast to 2.5% this year from 5.7% in 2021 and from the 3.7% it had forecast in January. For the 19 European countries that share the euro currency, it downgraded the growth outlook to 2.5% this year from 5.4% last year and from the 4.2% it had expected in January.
Near 7:30 a.m. EDT, NYMEX WTI for July delivery rallied $1.12 to $120.53 bbl, while international crude benchmark Brent contract for August surged above $121 bbl, up $1.01. NYMEX RBOB July contract declined 3.53 cents to $4.1577 gallon and ULSD July futures dropped 3.95 cents to $4.3206 gallon.
Liubov Georges can be reached at email@example.com