We expect a gentlemen’s agreement in Doha: Morse

Citi's Ed Morse: Expect sharp oil selloff if no deal in Doha
Citi's Ed Morse: Expect sharp oil selloff if no deal in Doha

Some market watchers have been speculating about how Saudi Arabia and Iran could affect this weekend's oil production-output meeting, but Citigroup's global head of commodity research told CNBC that both countries have been very clear about their next move.

The Saudis do not want to freeze production unless the Iranians participate, while the Iranians refuse to contribute to any output control deal, Ed Morse told "Closing Bell." "The market has had that very clear signal that if there is going to be an agreement, it's going to be kind of a gentlemen's agreement," he said.

Conversely, reports that Iran's oil minister will not attend the long-awaited meeting in Doha this weekend. This move has prompted investors to believe more geopolitical issues could surface from the Middle East.

Still, oil prices have held at the lower $40 range, after trading in the mid $20 range earlier this year. In the case that no deal is reached, however, Morse predicts a sharp sell-off in the oil market.

"The exceptional length we saw in the market, growing up until this past week, was a reflection of market expectations ... and now it's just too risky to hold that position," Morse said on Friday.

US oil closes at $40.36, down 2.75 pct, ahead of Doha

Ahead of the meeting, both U.S. crude and the internationally traded Brent closed lower. WTI closed down 3 percent lower at $40.36, while Brent settled nearly two percent lower at $43.18 a barrel.

"We are not expecting a freeze of any sort," he said. "Nobody expects the line to be held."

The expert notes that amid an oil supply decline, investors remain less anxious about the outcome of the Doha meeting, due to changes in oil supply.

"We are seeing the markets actually tightening up," he said. "We've seen, really, an incredible amount of oil disrupted from the markets."

The International Energy Agency reported Thursday that global oil supply sunk by 0.3 million barrels per day in March. "Commercial stocks in the OECD built counter-seasonally by 7.3 million barrels in February to end the month at 3 060 million barrels," it said. Similarly, the IEA predicts that growth in global oil demand will see a decline this year from 1.8 million barrels per day to 1.2 mb/d.

A worker walks atop a tanker wagon to check the freight level at an oil terminal on the outskirts of Kolkata, India.
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—Reuters contributed to this report.