Oil prices can climb above $50 a barrel if an output freeze deal
is struck in Doha this weekend, according to Bank of America Corp.
“A flat output profile for OPEC (excluding Iran) and Russia would
tighten global balances by almost 0.5 million barrels a day in the
second half relative to our expectations and push the oil market
into a deficit in the third quarter,” the U.S. bank wrote in a note
on Wednesday. That would “push prices above $50 near term,” it said.
At least 15 countries — including most members of the
Organization of Petroleum Exporting Countries, as well as
non-members such as Russia — have agreed to meet in the Qatari
capital on the weekend. Brent crude, which sank to a 12-year low in
January, has climbed about 30 percent since Saudi Arabia, Russia,
Qatar and Venezuela reached a preliminary agreement to freeze output
on Feb. 16.
Both a soft output freeze and a hard output freeze, with “some
enforcement mechanism,” would boost prices to above $50 a
barrel, Bank of America said. Brent traded at $44.20 as of 12:06
p.m. in London.
Whatever the outcome of the meeting, the market is
rebalancing, partly due to a drop in U.S. production and rising
global demand, the bank said.
Political Risk
U.S. oil production stands at 9.01 million barrels a day,
down 6.2 percent from the record high of 9.61 million reached in
June last year, according to the U.S. Department of Energy.
Bank of America didn’t exclude the possibility of a failure
to reach a freeze agreement, a scenario that would lead to
prices dropping below $40 a barrel. One risk is that Saudi
Arabia could announce an expansion in production in response to
Iran’s return to the market following the end of the sanctions
on its nuclear agreement in January. In that case, prices could
fall as low as $30 a barrel, the bank said.
The deputy Crown Prince of Saudi Arabia said earlier this
month that the world’s biggest crude exporter would only
consider an output freeze if Iran joined in, while Tehran has
repeatedly said its aim is to ramp up production to recover
market share lost under sanctions.
“Middle East politics could once again trump oil economics,”
Bank of America said.
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