George TsagkarakisThe man who runs global banking and markets at Goldman Sachs thinks oil ends 2026 well below $70 a barrel. West Texas Intermediate futures closed back above $80 on Monday. That gap is the whole argument.
Ashok Varadhan, Goldman’s co-head of global banking and markets, laid out a three-part case last week on the firm’s “The Markets” podcast for why investors rattled by rates, energy prices and the durability of the expansion should sit tight.
“Stay invested would be my advice,” Varadhan said.
He’s betting against a Fed hike
Start with rates, because that’s where he’s furthest from the market. Traders have been pricing in real risk that the Federal Reserve resumes tightening as inflation lingers. Varadhan isn’t buying it.
“I don’t think we will see hikes in the latter part of this year,” he said. “I think rates are going to stay on hold.”
The market moved his way after Friday’s disappointing jobs report. Odds of a September move fell to around 50% on Monday, with October at 63%, according to the CME Group’s FedWatch gauge of futures prices. Those aren’t small numbers for a call that amounts to “nothing happens.” A coin flip on September is still a coin flip.
His reasoning is that the forces that drove inflation up are fading, tariffs among them. Easing geopolitical tension around the Strait of Hormuz would take more pressure off.
The AI argument cuts both ways and he says so
Varadhan expects AI to become a disinflationary force. Not immediately. He’s explicit that the infrastructure build-out required to support it strains resources and adds to inflation in the near term, and that the productivity benefits only flip the sign once that capacity is actually in place.
That’s a more careful version of the argument than you usually hear. The build-out is happening now. The payoff is later, and he doesn’t put a date on it.
Oil is the piece that hasn’t cooperated
“I think energy is going to go back down,” Varadhan said. “I think oil settles back down well below $70 a barrel, maybe even lower once we get towards the latter part of the year.”
Crude went the other direction this week. WTI climbed back above $80 per barrel Monday as doubt grew that the U.S. and Iran will reach a deal to increase ship traffic through the Strait of Hormuz. Varadhan is calling for a move of more than $10 from here, and the same Hormuz situation he cites as a potential source of relief is currently the reason prices are up.
Nominal growth keeps absorbing the hits
The third pillar is the economy itself. Despite a run of external shocks, underlying nominal growth has stayed durable, he said. If those pressures fade, the expansion continues and picks up the AI productivity gains on top.
That’s also why he’s constructive on credit. Heavy issuance means investors should demand somewhat more compensation for taking risk, he said, but a strong economy has kept spreads from widening dramatically.
“If you think the exogenous shocks are going away and you still have the resilience of the economy,” Varadhan said, expectations for realized defaults can remain “fairly low.”
Note the conditional. The default case rests on the shocks going away, which is the same assumption doing the work in the oil call and the rate call. Three reasons, one dependency.
The S&P 500 has rallied back to a record high recently, bringing 2026 gains to more than 13%. “Stay invested” is advice that costs you nothing to follow if he’s right and costs you a lot if the Fed hikes in September. Watch the October futures pricing, not the podcast.
