Goldman Bets on Cheap Oil: ‘Lower for Longer’ Strategy Deepens

The Goldman Sachs commodity markets research team expects oil supply to increase gradually, with another increase from OPEC+ and strong growth in production outside the US, especially from shale oil.

At the same time, they share three key observations regarding President Trump’s views on oil prices:

1. Trump focuses on the US energy dominance.
2. He hints at preferring WTI to be in the $40-50 per barrel range and insists on lower prices when WTI exceeds $50, as well as higher prices when it falls below $30.
3. Trump’s tendency to post about sanctions generally decreases when prices rise, especially if WTI is in the $60-70 range.

Moreover, although current demand appears resilient, the GS team expects slow but non-recessionary demand growth in 2025 and 2026.

They also believe that despite continued real GDP growth, China’s oil demand already peaked in 2023.

The team’s core conviction remains that high spare capacity and increased recession risks tilt the medium-term risk for oil prices downward, despite low positioning.

Here are the four trades Goldman’s trading team prefers to benefit from the “oil lower for longer” thesis:

Trade 1: Long low-income consumers vs. short housing sector
With fuel prices near a 3-year low due to lower oil prices, lower-income households are expected to have more disposable income. This is supported by upcoming tax relief targeting these households, as well as tariff risk easing. Higher long-term interest rates will create difficulties for homebuyers (due to higher mortgage rates) but allow more spending for lower-income households.

Lower- and middle-income households spend the most on fuels and will benefit the most from lower gasoline prices.

Low-income consumers relative to the housing sector bottomed late last year:

Trade 2: Long natural gas vs. short oil
Natural gas has significantly lower elasticity relative to GDP because it is vital for heating, cooling, and electricity production, while oil is more closely linked to economic growth.

We prefer to hold long positions in companies benefiting from higher natural gas demand versus short positions in oil companies.

According to GS Commodities analysis:

• A 1 percentage point drop in US GDP leads to:
  • Only a 0.4 percentage point decline in natural gas demand
  • Nearly $2/barrel drop in oil futures after 1 year (without OPEC reaction or risk premium change)

Trade 3: Long companies with high oil usage vs. short oil companies
The GS Oil Input Cost Basket index (GSXUOILX) includes US stocks of companies where at least 15% of cost of goods sold depends on oil and its derivatives.

With expectations of sustained low oil prices, these companies tend to outperform oil producers.

Trade 4: “Wolfe Oil Sensitivity Pair”
GSPUOILY is a specially constructed basket that holds equal value long positions in GSXUWFOL (companies sensitive to high oil prices) and short positions in GSXUWFOS (companies sensitive to low oil prices). The portfolio is rebalanced daily to maintain equal exposure.

The basket is structured to minimize sector and other factor influences, remaining diversified, liquid, and easy to trade.