Goldman Warns Energy Markets Enter Demand Destruction Phase

In a stark assessment amid one of the largest oil supply shocks in history, Goldman Sachs has signaled that global energy markets—led by crude oil—are shifting into a demand destruction phase. Even if a near-term peace deal eases the closure of the Strait of Hormuz, severely depleted inventories mean markets will likely require significant demand curtailment before supply-demand balance normalizes and prices stabilize.

The warning comes as tanker traffic through Hormuz (which normally carries ~20% of global traded oil) remains down more than 90% from normal levels. Global oil inventories are drawing at a record pace of 11–12 million barrels per day (bpd) through April, swinging the market from a projected 1.8 million bpd surplus in 2025 to a 9.6 million bpd deficit in Q2 2026. Middle East production losses have reached an estimated 14.5 million bpd at peaks, far exceeding past disruptions like the 2019 Saudi drone attacks.

Scale of Demand Destruction and Affected Markets

Goldman’s analysis quantifies the emerging destruction clearly:Q2 2026: Global oil demand is projected to fall by 1.7 million bpd.
Full-year 2026: Net demand impact is roughly 100,000 bpd lower versus 2025 levels (a contraction in some outlooks, aligning with IEA’s revised forecast of an 80,000 bpd annual decline).
These losses are already larger in early 2026 than those seen during the dramatic price spikes of 2011 or 2022.

Key markets hit hardest:

Petrochemical feedstocks (especially naphtha and LPG) and jet fuel/aviation — driven by high refined product prices and margins.
Price-sensitive regions: Asia (strongest early cuts), Africa, Latin America, and the Middle East — where discretionary travel, industrial use, and subsidized fuels face immediate pressure.
Refined products overall: Gasoline, diesel, heating oil — with pass-through from crude to pump prices, accelerating shutdowns, flight cuts, factory slowdowns, and switches to alternatives.

Goldman notes pronounced weakness here stems from elevated refined product cracks and feedstock constraints at refineries, transmitting more pain to consumers and industry than headline crude benchmarks suggest.

The International Energy Agency echoes this, projecting the sharpest quarterly demand drop since the COVID collapse in Q2, with destruction spreading beyond initial Asia/Middle East hotspots as scarcity and high prices persist.

Implications for Oil Prices: Supply Tightness vs. Demand Response

Supply remains the dominant driver in the near term — the “worst oil crisis in history” per some Goldman characterizations — with inventories potentially falling to 98 days of global demand by end-May (from ~101 currently) and refined product stocks at just 45 days.

This forces prices higher to ration barrels until demand destruction catches up. Goldman’s frameworks:

Base case (Hormuz normalizes by end-June, moderate production recovery): Brent averages ~$90/bbl in Q4 2026 (WTI ~$83).
Upside/prolonged disruption (extra month of severe closure + 2 mbpd persistent losses): Brent $115–$120 or higher in Q3/Q4; earlier notes flagged peaks potentially exceeding the 2008 record of $147 if risk premiums spike for precautionary destruction.
Downside (faster resolution + trade suppression): Low $60s possible.

Overall, 2026 Brent forecasts have been revised multiple times (e.g., to $83–$90 averages in recent notes) upward, but remain two-sided: easing disruptions could pressure prices lower, yet physical shortages and product tightness keep upside risks elevated.

Without sufficient destruction, inventories would hit operational floors (potentially by summer/fall), triggering even sharper price spikes that force deeper economic pain — factory shutdowns, reduced driving, flight cancellations, and broader growth slowdowns. Chevron and Exxon executives have separately warned of an “inflection point” approaching with “unheard of” low inventory levels, underscoring the physical scarcity.

Broader ripple effects include recession risks (historical precedent from oil spikes), currency/inflation pressure in import-heavy nations (India, EU, Sub-Saharan Africa), and accelerated shifts: Europe toward electrification/AI-driven power demand, and global energy transition via cost signals. Data centers alone are projected to nearly double U.S. power demand by 2027, highlighting diverging energy stories.

In short, supply destruction from the conflict has outpaced initial demand response, but the market is now self-correcting through price-induced curtailment. Goldman and peers emphasize that extreme draws are unsustainable — demand destruction is not optional; it’s the mechanism that prevents total breakdown.

Energy investors and policymakers should monitor refined product margins, Asian consumption data, and any Hormuz reopening signals closely. While base cases point to eventual easing, the path through this demand destruction phase remains volatile with material economic stakes.