Wall Street never misses a chance to render its opinion on that hardest of topics: the future. Whether it be corporate earnings, economic growth, or even the likely winner of an election, Wall Street is there with its crystal ball. Case in point: Goldman Sachs (NYSE:GS) recently released its regular statement on its forecast for the price of oil. In this clip from Industry Focus: Energy, Motley Fool analysts Sean O'Reilly and Taylor Muckerman talk about what the investment bank had to say about the oil industry and a potential production cut from OPEC.
A full transcript follows the video.
This podcast was recorded on Sept. 29, 2016.
Sean O'Reilly: Everybody's favorite investment bank, Goldman Sachs, always broadcasting their views, came out with an oil call.
Taylor Muckerman: This was before the OPEC meeting.
O'Reilly: Yeah, granted, it was before the OPEC meeting.
Muckerman: They did address it, though. They addressed, "Hey, these are our thoughts if OPEC does X/Y/Z."
O'Reilly: How are they analyzing all this?
Muckerman: They're looking at U.S. production, they're looking at the fracklog --
O'Reilly: Which is what you were talking about earlier.
Muckerman: They're looking at Libya and Nigeria bring back production. They're looking at major projects around the world that are coming online in Kazakhstan, Australia, things like that. And they're also looking at Russia and Saudi Arabia producing at record levels. They basically adjusted their prices downward for the end of 2016, they left their 2017 expectations at $52 per barrel.
O'Reilly: Which we're almost at.
Muckerman: Yeah, we're only a few dollars shy of that right now.
O'Reilly: Are they being too conservative? The supply and-demand balance next year.
Muckerman: I don't think it's all that conservative when you look at the overhang of wells that are not only drilled and uncompleted, but wells that could be drilled and completed next year in the United States at $50 to $60 per barrel.
O'Reilly: When you say that, are you talking about the Permian rush?
Muckerman: The Permian, Eagle Ford, all these basins can still be produced in -- well, not all of them, but a significant portion of these heavy-producing basins, the Eagle Ford, the Bakken, and the Permian, which is the darling of the day right now, can be produced in that $50 to $60 range. So, there's definitely some downward pressure as you see upward movement in prices. I don't think that overhang is gone. We still have that accessible oil that can weigh on prices whether it's being produced or not, because there's always a threat of production. So they've lowered their global oil price forecast for the end of this year from $50 per barrel to $43 per barrel. They did say that any OPEC decision could add some near-term upward momentum. And we saw that 5% to 6% jump yesterday. But, "near-term" is the key term there. I do think in the next couple years there's going to be downward pressure. I don't think, unless it's just a temporary spike, $70 is way out of the picture in my mind for the next year or two.
O'Reilly: Again playing devil's advocate, Goldman in the end of 2014 was in the "$90 forever" camp.
Muckerman: The unpredictability of OPEC, right? If something happens, that unpredicted spike that we talked about could happen. But if OPEC only lowers production by 500,000 to 750,000 barrels, you don't see any civil arrest in countries like Iran, Nigeria, Libya --
O'Reilly: There's always a nice little possibility.
Muckerman: There is. I think, now, that would have an impact on prices.
O'Reilly: Because things are a little bit tighter.
Muckerman: When you look back to 2014 or 2013, there was a lot of unrest. In 2012, you had all of Arab Spring going on --
O'Reilly: That's why I always thought the drop was all the more surprising.
Muckerman: You didn't see any upward movement when countries like that were shutting in production due to some volatility among the countries there. That should have been a warning sign for a lot of people, when countries that are heavy oil producers, that impact the global supply, are shutting in supply, and prices aren't spiking.