By BRIAN WINGFIELD on 11/21/2016

NEW YORK (Bloomberg) — Goldman Sachs Group raised its oil-price forecast for early next year, saying it is “tactically bullish” on the likelihood that OPEC will be able to reach a deal to curb output to steady global markets.

The investment bank said it expects oil prices in New York to rise to an average $55/bbl during the first half of 2017—from $45 and $50 previously—on the assumption that OPEC will agree to cut output to 33 MMbpd and that Russia will freeze production.

“With greater confidence that the global oil market can finally shift into deficit later next year, we now believe that there is a strong rationale for low-cost producers to deliver a swift production cut to normalize inventories,” Goldman analysts including Damien Courvalin said in a research note.

Since late September, when members of the Organization of Petroleum Exporting Countries met in Algiers and announced the outline of a deal to limit output, all eyes have been on the group to see how it might follow through with such a pledge. The group is seeking to reach an agreement by Nov. 30, when it meets in Vienna. Nations including Iran and Iraq are seeking special treatment, and prices have slumped to mid-September levels amid doubts that OPEC can succeed in coordinating a cut.

“Oil fundamentals have weakened sharply since OPEC announced a tentative agreement” and the current glut will increase to about 700,000 bpd in the first three months of next year unless OPEC acts, according to Goldman Sachs. Any cut would have to come primarily from Saudi Arabia, Kuwait, the United Arab Emirates and Qatar, with other members keeping output steady at current levels through the first half of 2017, the bank said.

The market’s shift to a deficit could also be reflected its forward pricing, which may become backwardated, the analysts wrote. Brent futures mostly traded in contango—denoting a short-term oversupply because immediate prices are cheaper than those in later months—since a price slump that began in mid-2014, according to ICE Futures Europe. Backwardation normally indicates a more balanced market.

Russia Freeze

OPEC has looked outside of its 14 members—particularly to Russia—for support in its effort to steady markets. Russian President Vladimir Putin told reporters Sunday in Lima that there is a “strong likelihood” that an agreement will be reached, and that Russia is willing to freeze output at current levels.

OPEC in October produced a record average 33.6 MMbopd, according to its own estimates. Russia is now producing at a post-Soviet-era high, data from the nation’s energy ministry show.

Goldman said it still expects West Texas Intermediate prices to average $52.50/bbl and Brent crude to average $54/bbl next year. That’s because OPEC may resume production growth in late 2017 and U.S. shale producers would benefit from a price rally early in the year. It also cautioned that political risks could derail any production deal.