The U.S.'s embarrassment of oil riches may not have been that beneficial after all.
Those are the findings of a recent Goldman Sachs report, in which the bank explained that the net effects of cheaper crude on growth have been "negative so far," given the impact on oil producers who are now finding it hard to churn out more black gold while maintaining needed levels of capital expenditures.
Although Goldman acknowledged a lift to consumer spending, the summary constituted an admission that the virtues of the boom that sent U.S. oil production skyrocketing, leaving world markets awash in inexpensive crude, may not have delivered the economic boost many observers had anticipated at its outset.
"While cheap oil has … become 'too much of a good thing' for growth, the employment impact of lower oil prices is likely still positive, reflecting the modest effect on employment of the capital-intensive energy sector," Goldman wrote.
Last year, the U.S. produced nearly 10 million barrels per day — the largest amount in decades and second only to Saudi Arabia. As a consequence of the massive buildup of supply that flooded world markets, oil prices slumped by more than half, placing intense pressure on domestic energy producers.
In the research note released on Saturday, Goldman estimated that the level at which U.S. producers would need to breakeven is somewhere within a range of $45 to $80. On Friday, crude closed below $40 per barrel.
Given current levels of crude, the crumbling of capital expenditures is a net drag on economic growth, Goldman notes. It added that oil would need to climb back to $70 at least to give energy capital spending a second wind.
"Adding up, we conclude that the net effect of cheap oil on growth has probably been negative so far, with the capex collapse outweighing the consumption boost," analysts wrote.
"But going forward, the net effect is likely to be neutral at worst under our $30 scenario, but would be moderately positive if oil prices rebound to $50 or $70, reflecting the outsized impact of price changes in this crucial range on energy capex and production," it added.