Events in China, not Russia, drove oil prices this past year, and now that Chinese manufacturing activity is on the upswing, the next 12-18 months are likely to see another spike in oil prices, says Goldman Sachs. 

That could mean crude oil targeting prices above $100 per barrel in the fourth quarter of this year. 

The situation is “tighter” today, Jeff Currie, global head of commodities research at Goldman Sachs, told Bloomberg Surveillance Early Edition on Wednesday.  

The big event last year was not Russia. It was China. 

“Global oil demand contracted 2% in the fourth quarter of last year, and that’s a recession in my book,” Currie said. That contraction, said Currie, created the spare capacity in oil and other commodities, but manufacturing data coming out of China this morning shows that is now reversing.  

The Chinese manufacturing purchasing managers’ index (PMI) jumped to 52.6 in February from 50.1 in January, data from China’s National Bureau of Statistics showed on Wednesday. The surge in factory activity was the fastest in over a decade. Additionally, the index for non-manufacturing sectors also jumped, signaling an overall expansion of the Chinese economy in February. Altogether, it signals the potential for a faster-than-expected rebound after the reopening from the ‘zero-Covid’ policies abandoned by Beijing just at the end of 2022. 

“We created new supply, not through investment, but through China contracting, through lockdowns. Now, as China comes back, we’re gonna lose that spare capacity and we’re gonna be back to the same problems we had before,” Currie warns. The real focus, according to Goldman, is supply scarcity. 

“At this point, the ability to get from one year to the next given how scarce supply is, is really the focus. And the markets have been trading that way,” Currie said, noting that a commodities supercycle is not an “upward trend”; rather, it is a “sequence of spikes”. 

We’re coming off the backside of one spike. He’s confident we’ll see another spike in the next 12-18 months,” he said.