Wall Street Titan Goldman Sachs Voices Its Opinion on Oil: What You Need to Know

By Markets Fool.com

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 fromIndustry Focus: Energy, Motley Fool analystsSean 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.

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A full transcript follows the video.

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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.

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Taylor Muckerman:This wasbefore 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 iswhat you were talking about earlier.

Muckerman:They're looking atLibya and Nigeria bring back production. They're looking atmajor projects around the worldthat are coming onlinein Kazakhstan, Australia, things like that. And they're also looking atRussia and Saudi Arabia producing atrecord levels.They basically adjustedtheir prices downwardfor the end of 2016, they left their2017 expectations at $52per barrel.

O'Reilly:Which we're almost at.

Muckerman:Yeah, we'reonly a few dollars shy of that right now.

O'Reilly:Arethey being too conservative? Thesupply and-demandbalance next year.

Muckerman:I don't think it's all that conservativewhen you look at the overhang of wells that are not only drilled anduncompleted, but wells that could be drilled andcompleted next year in the United States at $50 to $60 per barrel.

O'Reilly:Whenyou say that, are you talking about the Permian rush?

Muckerman:ThePermian, 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'sdefinitely some downward pressureas you see upward movementin prices. I don't think that overhang is gone. We still have thataccessible oil that can weigh onprices whether it's being produced or not, because there's always a threat of production. So they've lowered their global oil priceforecast 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-termupward momentum. And we saw that 5% to 6% jump yesterday. But, "near-term" is the key term there. I do thinkin the next couple years there's going to be downward pressure. I don't think, unless it's just a temporary spike, $70 isway out of the picture in my mind for the next year or two.

O'Reilly:Againplaying devil's advocate, Goldman in the end of 2014 was in the "$90 forever" camp.

Muckerman:The unpredictability of OPEC, right? Ifsomething 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 incountries like Iran, Nigeria, Libya --

O'Reilly:There'salways 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:Whenyou 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'swhy I always thought the drop was all the more surprising.

Muckerman:Youdidn't see any upward movementwhen countries like that were shutting in production due to somevolatilityamong the countries there. That should have been a warning sign for a lot of people, whencountries that are heavy oil producers, thatimpact the global supply, are shutting in supply, and prices aren't spiking.

Sean O'Reilly has no position in any stocks mentioned. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.