Goldman Sachs Negative on Oil Through 2019

Goldman Sachs (NYSE: GS) is convinced the price of crude oil isn’t going to recover for another few years at a minimum.

The revered investment banker issued a research note on Tuesday that threw cold water on any thoughts of a crude oil rally, at least in the short-to-medium term.

The main bearish reason continues to be U.S. (and Canadian) share production. Goldman Sachs said "2017-19 is likely to see the largest increase in mega projects’ production in history, as the record 2011-13 capex commitment yields fruit.” In other words, projects first started when prices were better will really start producing.

Costs have also come down. Baytex Energy Inc. (TSX:BTE)(NYSE:BTE), a shale driller focusing on the Eagle Ford Formation in Texas, has reported a breakeven cost of approximately $35 per barrel for the region. Even if crude languishes at today’s price, it and other shale producers can still make money.

The decision by the Organization of the Petroleum Exporting Countries to cut production in November 2016 helped keep crude prices up, but it had an unintentional impact. It helped strengthen the credit profiles of many shale producers, which will ultimately lead to more production. It made oil a better credit risk.

Also, keep in mind OPEC’s decision to cut production is just temporary, and can be rescinded at any point. If shale production continues to ramp up, Goldman Sachs sees potential for the cartel to once again bring prices lower, in an attempt to once again bankrupt many U.S. producers.

Crude oil fell on the news, heading 1.8% lower to $47.40 during Tuesday’s trading.