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Global demand upturn, IMO rule could boost Brent oil to $90 a barrel - BofA

(Reuters) - De-escalation of a trade war could result in a weaker dollar and stronger global growth, which along with International Maritime Organization (IMO) changes to shipping fuel rules could raise Brent oil to $90 a barrel, Bank of America Merrill Lynch said.

“The new shipping fuel rules by IMO could result in the largest ever surge in middle distillate demand ... The net result will likely be a large bump up in oil demand from the global power generation sector.”

The IMO’s mandated switch, due to take effect next year, will require fuels to have a sulphur content below 0.5%, compared with 3.5% now.

However, prices could dip to $50 per barrel if the U.S.-China trade war hurts consumer sentiment, which could eventually lead to an economic downturn, the bank said in a note dated May 16.

Oil rose to $73 a barrel on Friday, supported by a host of supply cuts and concern about further disruptions to Middle East shipments as tensions rise, and was heading for a weekly gain. [O/R]

But oil inventories appear balanced, with supply (less Iranian/Venezuelan supply) and demand (less business cyclical demand) factors partly offsetting each other, it added.

“With military tensions rising in the Middle East and trade tensions rising between the U.S. and China, we believe that chances of a tail event driving Brent crude to these price extremes (are) higher than what option markets are currently pricing.”

December 2019 Brent options imply only a 10% chance of a jump above $90 per barrel and a 6% chance of prices falling below $50 per barrel, the bank said.

Reporting by Swati Verma and Asha Sistla in Bengaluru; Editing by Dale Hudson