Goldman lifts oil price forecasts amid Iran war deadlock; Shell buys Canada’s ARC for $13.6bn

Goldman Sachs has sharply raised its oil price forecast, warning that the deadlock in the Middle East conflict will keep global supplies under severe pressure for longer than previously anticipated. The investment bank now expects Brent crude to trade at around $90 a barrel in the final quarter of this year, up from an earlier projection of $80, while US crude is forecast to average $83 between October and December, compared with a prior estimate of $75.

Goldman sees deeper supply losses and sustained demand destruction

The upgrade is driven by what Goldman calls “lower Persian Gulf production”. The bank’s analysts told clients they now assume a normalisation in Gulf exports by the end of June, rather than mid-May as previously assumed, and a slower recovery in regional output. They estimate that 14.5 million barrels a day of Persian Gulf crude production has been lost, leading to a record drawdown of global oil inventories of between 11 million and 12 million barrels a day this month alone.

Goldman warns that the jump in oil prices will trigger “softer demand”. The bank projects that global oil demand will fall on a year-over-year basis by 1.7 million barrels a day in the second quarter of 2026 and by 0.1 million barrels a day over the full year 2026, driven by higher prices for refined products. “Because extreme inventory draws are not sustainable, even sharper demand losses could be required if the supply shock persists longer,” the analysts said.

The bank also laid out three scenarios for how events could unfold, each with very different price outcomes. In an adverse scenario, where Gulf exports normalise only by the end of July, Brent would average just over $100 in the fourth quarter of 2026. In a severely adverse scenario, which assumes a 2.5 million barrel a day persistent reduction to Gulf capacity — equivalent to Hormuz flows not recovering above 70% until pipeline capacity is expanded — Brent would average nearly $120. In a benign scenario, where Gulf exports normalise by mid-June with no capacity reduction and stronger supply responses from the US and core OPEC members, Brent would average just under $80.

The bank had previously trimmed its forecast earlier this month after a US-Iran ceasefire was announced, but the continued stalemate has forced a reversal.

Pakistan raises rates as conflict fuels inflation

Pakistan’s central bank has raised interest rates in a surprise move aimed at containing the inflationary fallout from the Iran war. The State Bank of Pakistan lifted its key policy rate by 100 basis points — one percentage point — to 11.5%, a decision that caught markets off guard: six of ten analysts polled by Reuters had expected rates to remain on hold at 10.5%.

The bank’s monetary policy committee warned that the “prolonging of the Middle East conflict has intensified risks to the macroeconomic outlook”, citing global energy prices, freight charges, insurance premiums and supply chain disruptions. “In this backdrop, the Committee assessed that inflation is likely to increase and remain above the target range in the next few quarters,” the bank said. It added that a tighter policy stance was necessary to keep inflation expectations anchored and contain second-round effects of the supply shock.

In contrast, the Bank of England is not expected to follow suit when it announces its latest decision later this week. City economists broadly expect the BoE to leave borrowing costs unchanged despite inflation rising to 3.3% in the wake of the war. Professor Costas Milas of the University of Liverpool’s Management School said the inflation reading set the tone for “a very interesting Monetary Policy Report” on Thursday. He expressed concern that the Bank’s forecasts remain conditional on market expectations of interest rates, which can shift rapidly with political statements. Milas argued that a “cleaner” approach would be for Monetary Policy Committee members to condition forecasts on their own anonymous views, noting that Kevin Warsh, the nominee to run the US Federal Reserve, has warned policymakers can become “prisoners” of their own forecasts.

Shell bolsters North American output with $13.6bn Canadian deal

Oil giant Shell is boosting its crude production by acquiring Canadian energy company ARC Resources in a cash-and-shares deal valued at $13.6bn. The acquisition gives Shell a major foothold in the Montney shale basin spanning British Columbia and Alberta, adding 370,000 barrels a day of oil and gas. Shell said the deal increases its exposure to “long-duration, low-cost and top quartile low carbon intensity shale gas and liquids” and is expected to generate double-digit returns.

Shell’s chief executive, Wael Sawan, said the acquisition establishes Canada as a “heartland” for the company and furthers its strategy to “deliver more value with less emissions”. Under the terms agreed between the two companies, ARC investors will receive 8.20 Canadian dollars in cash and 0.40247 ordinary shares of Shell for each ARC share, representing 25% cash and 75% shares based on closing prices last week. Shell will also take on $2.8bn of net debt, giving the deal an enterprise value of $16.4bn.

Strait of Hormuz traffic remains a trickle

At least seven ships — mainly dry bulk vessels — crossed the Strait of Hormuz in the past 24 hours, according to ship tracking data from Kpler and satellite analysis from data analytics firm SynMax. The vessels included ships leaving from Iraqi ports and one dry bulk vessel from an Iranian port. Before the war began, around 140 ships would pass through the strait each day. The small flow of traffic continues while talks between Iran and the United States remain stalled, though Axios has reported that Tehran has made a new proposal to Washington to reopen the waterway.

The oil price was continuing to rise on Monday morning, up 2.5% at over $108 a barrel, as the lack of progress towards a peace deal weighed on markets.

Market nerves and broader economic ripples

Emerging market stocks hit record highs on Monday, with MSCI’s gauge of global emerging market shares rising 1.3%, extending a four-week rally. The gains were driven by optimism in the AI sector and followed record highs in US and Japanese markets. But Capital Economics warned that the risk rally is on borrowed time while the Strait of Hormuz remains largely closed. Chief markets economist Jonas Goltermann said: “If the diplomatic and military stalemate between the US and Iran continues, and the strait of Hormuz remain largely closed, policymakers and market participants will find it increasingly difficult to keep ‘looking through’ the crisis.”

UK retail conditions have darkened, according to the latest distributive trades survey from the CBI. A net balance of 32% of retailers reported that sales volumes were poor in April, worse than the 23% who said the same in March, in a sign that the Iran war is hitting consumer spending. Retailers expect May’s sales to fall short of seasonal norms to an even greater degree, with a net balance of minus 43%.

Drivers across most of the UK are missing out on a drop in wholesale fuel prices, the AA reports. Average diesel pump prices fell from 192.0p a litre to 191.0p a litre last week — just a tenth of a penny — while wholesale diesel costs fell by 10p a litre. The exception is Northern Ireland, where supermarkets cut diesel prices by nearly 4p a litre. Regionally, Yorkshire and Humber had the cheapest petrol at an average of 156.0p a litre, while the South East was highest at 158.8p.

German chemicals giant BASF has announced a second price hike since the war began, raising prices by an additional 25% on products in its antioxidant, process stabiliser and light stabiliser portfolio for plastic applications. The company cited “substantial” gains in raw material, energy and logistic costs due to the Middle East conflict, and said the increase is effective immediately on top of a 20% hike announced on March 4.

The pound rose to its highest level against the US dollar in just over a week, gaining 0.2% to $1.355, as the dollar weakened on expectations of a change at the top of the Federal Reserve. Republican Senator Thom Tillis said he will allow Fed chair nominee Kevin Warsh to face a Senate vote, clearing the way for Donald Trump’s choice to take control of the central bank. Tillis dropped his opposition after the Department of Justice said it would drop its criminal investigation into current Fed chair Jay Powell, whose term ends next month.

Tech: Intel’s long-awaited milestone and a caution on AI stocks

Intel’s shares are set to hit a new 26-year high when Wall Street opens, after surging more than 23% on Friday following a strong revenue report powered by AI demand. The rise took the stock above its peak during the 2000 dot-com bubble, an event Deutsche Bank’s Jim Reid said highlights “the potential for huge gains and the inherent risks and patience required when investing in individual equities”. Reid noted that Intel’s share price was still down 70% from that 2000 high as recently as the third quarter of 2025, but is now up over 120% so far this year. He cautioned that the 26-year recovery period, during which the S&P 500 climbed around 370% (over 650% including reinvested dividends), serves as a reminder of “the perils of picking the wrong entry point in high-beta sectors such as technology”. He posed the question of whether today’s high-flying AI stocks, such as Nvidia, could face a similar fate, taking decades to surpass recent peaks.

In a separate technology development, Beijing has blocked Meta Platforms from acquiring Chinese artificial intelligence startup Manus in a $2bn deal. China’s National Development and Reform Commission ordered the parties to cancel the transaction, saying it would hollow out the country’s technology base. Forbes has described Manus as “the world’s first fully autonomous AI agent, a system that doesn’t just assist humans — it replaces them.”

China’s credit outlook upgraded, beer sales set for World Cup boost

Moody’s has lifted its outlook on China’s government debt from negative to stable, affirming its A1 rating. The agency said the move reflects its assessment that economic and fiscal strength will be resilient to ongoing domestic, trade and geopolitical challenges. Moody’s noted that while export growth will likely moderate, the competitiveness and resilience of Chinese exports supports expectations of only a gradual slowdown in GDP growth. It added that government policies prioritising investment in high-productivity sectors will improve capital efficiency.

On a lighter note, analysts at Jefferies calculate that this summer’s men’s football World Cup, being held in the US, Canada and Mexico in June and July, will lift global beer sales by roughly one billion pints. Major brewers such as Anheuser-Busch InBev, maker of official World Cup beer Budweiser, and Heineken are expected to benefit. “AB InBev is in the sweet spot to benefit from FIFA upside,” the analysts said. “We expect all brewers to show sequential improvement versus 2025.”