Oil can top US$50 a barrel with freeze deal, Bank of America says

[LONDON] Oil prices can climb above US$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 US bank wrote in a note on Wednesday. That would "push prices above US$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 per cent 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 US$50 a barrel, Bank of America said. Brent traded at US$44.20 as of 12:06 pm in London.

Whatever the outcome of the meeting, the market is rebalancing, partly due to a drop in US production and rising global demand, the bank said.

US oil production stands at 9.01 million barrels a day, down 6.2 per cent from the record high of 9.61 million reached in June last year, according to the US 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 US$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 US$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.

BLOOMBERG