If you have been around for years in the markets, you have seen your fair share of booms and busts. That is also true for oil. After having spent years rising from under $20 to almost $150, and then coming way back down, 2015 and 2016 have proven to be very difficult for oil barons.

On July 27 Goldman Sachs issued an outlook report for the oil market. Goldman Sachs has been known to go for extremes: a mega-cycle on the way up and being arguably close to the most negative firm on the way down. This new oil price forecast actually seems more logical than the extremes. Still, time will tell.

Goldman Sachs analyst Damien Courvalin and team talked up oil in one sense, but it may also be representative of a near-term peak setting in as well. The view is that oil could more or less be caught in a range of $45 to $50 per barrel for the next year or so.

One key issue is that the improving oil fundamentals have been quite fragile. Non-OPEC production is only gradually declining, while low-cost production continues to rise. Large production disruptions have so far been transient as Nigeria and/or Libya could increase production again during the second half of 2016. Another issue is that the oil demand recovery looks front-loaded in 2016. Also there is China, with its strategic petroleum storage build-ups moderating.

Courvalin’s report said:

The improvement in oil fundamentals remains fragile and continues to feature large offsetting forces: wildfires have helped offset surprisingly strong Iran production, slowing demand growth in India and China in 2H16 will help offset production issues in Nigeria and Venezuela and finally product builds have offset crude draws. The resulting uncertainties on the near-term path of the oil market rebalancing have left the US dollar as the primary driver to lower crude oil prices recently. Beyond these near-term uncertainties, however, our updated supply-demand balance is little changed and continues to point to a slow rebalancing of the global oil market over the coming year. In particular, we do not view the rise in gasoline stocks as a catalyst for further price declines as it remains supply and not demand driven and can be resolved through lower margins. As a result, we continue to expect that oil prices will remain in a $45/barrel to $50/barrel trading range through mid-2017 with near-term risks skewed to the downside more from a macro than a micro perspective.

The good news is that the $45 to $50 range may be fairly strong. Courvalin believes that it would take a global demand slowdown, or a sudden sharp halt in China’s crude inventory build, or even a ramping up in Libya or Nigeria production to take prices back below $35 per barrel.

From an outsider’s view, this Goldman Sachs report seems more realistic than the extreme calls seen in the past. As soon as oil approached $50 in 2016, the spouts started being opened again and the rigs turned back on. That means that the industry now has many more wells that can be profitable at $50 or even lower. The bad news is that it also means that is where the supply floodgates will open up again.

Many things drive the price of oil. At the end of the day, classic economist theories will say that price action has to be settled by and demand forces. Demand took oil back up from below $30 lows, but the available supply that can and will come back may put a cap at $50 or slightly higher. Again, time will tell if this newer prediction will be more realistic than past extreme calls out of Goldman Sachs.

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