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Hopes that OPEC would make a deal to limit oil production helped push Brent crude within striking distance of a one-year high on Friday, but analysts say the rally may not have much further to go.
Crude prices have surged 11 percent since the Organization of the Petroleum Exporting Countries agreed last week to put a floor under oil prices by cutting production by around 700,000 a day, down from about 33.2 million barrels in August. More details are expected to be hammered out in meetings ahead of OPEC's annual gathering in Vienna on Nov. 30.
Many commodity watchers remain skeptical about how much a deal would affect prices, because market fundamentals remain weak. But the tentative agreement left speculators with a two-month window to play tug-of-war with oil prices.
"My suspicion is that the OPEC honeymoon will continue for quite a while," said Tom Kloza, global head of energy analysis at Oil Price Information Service.
Still, Kloza said that market technicians believe U.S. crude needs to strike $54.50 before traders are convinced oil prices are breaking out. He sees futures bouncing around a range of $48 to $54 until OPEC convenes on Nov. 30. Even after the OPEC meeting, oil prices will likely average $50 to $55 a month at best, he said.
"I just don't see any way that we get a $60 average for a month within the next 12 months," he told CNBC.
Oil prices could rocket higher to the $58 to $62 range if they break through the 2016 highs set in June, said John Kilduff, founding partner at Again Capital. U.S. crude is still some way off its peak of $51.67 this year, and Kilduff doesn't see it breaking that level.
"I think this is the upper end of the range where we are now," he told CNBC. "I don't think we'll see new highs."
Brent rose to just two cents shy of its 2016 high of $52.86 on Friday before falling as much as two percent from Thursday's close. U.S. crude also slipped back below $50 a barrel just one day after cracking the key level.
In Kilduff's view, the rally will slowly come undone between now and Nov. 30, though there are enough optimists to prevent oil prices from crashing below $42. The crude market stands to lose support if OPEC members give traders reason to doubt that a deal will happen, or if U.S. production shows signs of recuperating as prices rise, he said.
The most recent monthly production figures from the U.S. Energy Information Administration showed U.S. output falling by just 20,000 barrels a day in July, marking a slowdown from previous months.
Weekly production figures point to stabilization in August and September as the number of oil rigs operating in U.S. oilfields continues to rise, Goldman Sachs said in a recent research note. The higher rig count since May could help stem the decline in production from this month onward, in the bank's view.
The U.S. oil rig count remains depressed overall, but has risen by more than 100 rigs since May.
Despite the possibility of OPEC production limits, Goldman Sachs is maintaining its year-end target of $43 a barrel for U.S. crude, citing the likelihood that cartel members will not adhere to any quotas they set in November. Goldman also sees risk in crude supplies rising more than expected as Nigeria and Libya restore output that had been sidelined by internal strife.
Taken together, analysts said a bounce in supply from Libya and Nigeria, moderating U.S. output declines, and rising Russian production could significantly offset the benefit of an OPEC deal.
"The price for the next few months is going to be determined not in Vienna, but in places like Lagos, Nigeria; Tripoli; and Moscow — and maybe Midland, Texas," Kloza said.