Energy

Oil prices could go south of $40 a barrel if OPEC deal fails, expert says

Croft: If OPEC fails, oil could be sub $40
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Croft: If OPEC fails, oil could be sub $40

Oil prices could go under $40 a barrel, if the Organization of the Petroleum Exporting Countries (OPEC) production cut agreement doesn't get worked out, according to one expert.

The group will likely get its planned production deal done, but Helima Croft, global head of commodity strategy at RBC Capital Markets, said the agreement won't be finalized until the last minute.

"I think they'll get it done, but I think they'll get it done right before November 30," Croft said on CNBC's  "Power Lunch" on Monday.

Oil prices were under pressure on Monday amid market reservations about whether the deal will go through. U.S. West Texas Intermediate crude futures settled down 3.78 percent at $46.86 a barrel, while international Brent crude futures were also trading south of $50 a barrel.

Croft explained that even if the deal happens, there are a lot of preliminary meetings between now and the big day, which will create "a lot of noise of negative headlines."

One thing that gives Croft assurance, however, is that heavyweight Saudi Arabia has an incentive to help the OPEC deal along. It's in the country's "best interest to have oil above $50" a barrel for its planned initial public offering of a part of state oil giant Saudi Aramco, said Croft, who is also a CNBC contributor.

She explained that an OPEC agreement to limit oil production would "firm the case" for higher oil prices.

"This IPO is a very big policy priority for the deputy crown prince of Saudi Arabia. I think Saudi Arabia is incentivized to make this work," Croft said.