Goldman Sachs lowered its oil price expectations, a well-known analyst challenged the old employer: arbitrage funds will flow back, increasing the risk of rising oil prices!

Jeff Currie, Chief Strategic Officer of Energy at Kerry Group and a senior commodities analyst, recently stated that the risk of oil price increase will rise after the capital inflow from "arbitrage trading" returns to the crude oil market.

Specifically, Currie pointed out that high interest rates have prompted hedge funds and market participants in physical crude oil to reduce futures positions and crude oil inventories by as much as $100 billion, shifting their focus to the U.S. currency market for stable returns. With the Federal Reserve lowering interest rates, crude oil should become more attractive, attracting capital inflows. This reversal is similar to the stock market turmoil caused by the unwinding of the "arbitrage trading" in the yen earlier this month.

"With the decrease in interest rates, the cost of holding these inventories will decrease, and we will see more inventories returning to the oil market, whether in the form of physical assets or financial assets. You should see a reversal of dynamics that have put downward pressure on prices. Under similar conditions, oil prices should rise."

If there is a severe disruption in oil supply again, it could significantly exacerbate the potential reversal in the crude oil market.

Since reaching nearly $90 per barrel in early July, international oil prices have fallen by about 10%. Despite continuous reductions in global crude oil inventories, oil prices have remained low due to traders' concerns about deteriorating demand prospects. This Monday, amidst escalating tensions in the Middle East and Libya's temporary halt in exports, U.S. oil prices surged nearly 4%. However, on Tuesday, oil prices gave back much of the gains, falling over 2% intraday.

Currie pointed out that the contrast between the tight fundamentals of the oil market and the low prices is ultimately caused by arbitrage trading, which has attracted cash flows in the commodities sector. Currie estimates that oil investments need about a 15% return to compete with the safer 5.25% return offered by the U.S. currency market. The U.S. currency market has attracted $15 trillion in investments over the past two years.

However, with the significant shift in the Federal Reserve's stance, the situation mentioned above may soon change. Federal Reserve Chairman Powell clearly stated last Friday that it is time to adjust policies. The market expects the Fed to start the first rate cut of this cycle in September.

The neglect of the oil industry by investors makes this sector vulnerable to disruptions as geopolitical tensions continue to threaten oil supply. Currie stated that investors have been betting on lower oil prices, making them susceptible to the impact of price spikes.

"There are too many market shorts. If something happens that requires them to cover these shorts tomorrow, for example, if the situation in Libya deteriorates, the unwinding of arbitrage trades could be very significant. If this unfolds, we need to be careful."

Currie, who served as the head of commodity research at Goldman Sachs for nearly thirty years, is known for his bold and often bullish forecasts.

On the same Tuesday, Goldman Sachs lowered its oil price expectations for next year to below $80, revising its forecast to $77. Recently, Morgan Stanley also lowered its oil price expectations, expecting the global Brent oil price to average below $80 per barrel in 2025, fluctuating between $75-78. Wall Street has begun to bearish on the outlook for oil prices next year, citing increased global supply, including the risks posed by OPEC+, leading to an oversupply in the oil market, with oil prices expected to trend downward over the next 12 months Regarding the consecutive cuts in oil prices by Wall Street major banks, the financial blog Zerohedge sarcastically remarked that this once again indicates that oil prices are bottoming out. Morgan Stanley's past predictions have always been a rock-solid contrarian indicator. The issues in the crude oil market listed by Goldman Sachs and Morgan Stanley are nothing new to the market, as market sentiment has been apocalyptic, just as pointed out two weeks ago when bullish positions in oil had just hit historic lows.