Goldman Sachs predicts $100 oil as renewable transition falters

Goldman Sachs predicts $100 oil as renewable transition falters

This week, Goldman Sachs raised its oil price target to $100 again. The bank cited lower OPEC output combined with higher demand, which taken together, “more than offset significantly higher U.S. supply.”

The average gas price in the U.S. on September 20 was $3.875, slightly lower than a day earlier but $0.20 higher than a year ago.

Even with higher gas prices, EV purchases have slowed down instead of rising.

In Europe, the deindustrialization of Germany is no longer news, the car industry is bracing for a Chinese EV rush, and Brussels is trying to build an energy transition supply chain from scratch.

Meanwhile, offshore wind developers are canceling projects in both Europe and the U.S., solar developers in the EU are complaining about cheap Chinese panels.

Also meanwhile, oil and gas companies keep reporting meaty profits and investors are rediscovering their love of hydrocarbons.

The energy transition is backfiring.

At the recent World Petroleum Congress in Calgary, oil executives and government officials both warned against the continued push to discourage investment in new hydrocarbon production.

“There seems to be wishful thinking that we’re going to flip a switch from where we’re at today to where it will be tomorrow,” Exxon’s chief executive said during the event.

“No matter where demand gets to, if we don’t maintain some level of investment industry, you end up running shorter supply which leads to higher prices,” Darren Woods also said.

This is exactly what we are currently witnessing in Europe and the United States. Because of the transition push, oil producers are being extra cautious with production growth. Also, they are prioritizing shareholder returns to keep shareholders on, so it pays for them to be cautious.

In Europe, the supermajors are being squeezed by windfall profit taxes, activist pressure, and increasingly restrictive legislation, so they are turning elsewhere. Shell is tapping billions of potential barrels in Namibia, and Total is considering a $9-billion commitment to oil exploration in Suriname.

Meanwhile, drivers across Europe are struggling with higher fuel costs and higher electricity bills as the EU becomes increasingly dependent on intermittent wind and solar that need backup from hydrocarbon-fueled power plants. These plants are taxed heavily for their carbon emissions, which has pushed the cost of their output—and electricity bills—higher.

All of this is only going to get worse before it gets better. Because despite a growing number of signs that the transition is not going according to plan, those in the driver’s seat are doubling down on every single commitment.

The offshore wind energy industry is essentially on its deathbed, yet there has been no change of attitude from governments. The most likely thing they would do about its problems will probably be even more subsidies instead of a reconsideration of the role offshore wind would play in the transition.

In EVs, dealers are struggling with rising inventories in the U.S., and Ford said recently it was going to book a $4.5 billion loss on its EV business. In Europe, sales are up strongly, but carmakers are fretting about Chinese EVs, which are just as good as theirs but cheaper.

Solar energy is doing great in the U.S., set for record growth of 32 GW this year, “helped by investment incentives under the Inflation Reduction Act,” Reuters reported recently. It appears nobody really cares what happens when the sun goes down over all those gigawatts. Battery storage is far behind solar in terms of capacity.