After jumping the most in nine months, oil is expected to climbfurther after OPEC beat the odds to agree on an output cut. Justdon't expect the rally to last.

Morgan Stanley sees more U.S. shale drilling and increasedinvestment from Asia to the North Sea limiting oil's upside,setting the market up for disappointment in late 2017. GoldmanSachs Group Inc. forecasts prices will retreat back to $50 a barrelin the second half of next year after possibly rallying higher than$60. Japan's Mitsui & Co., which owns U.S. shale assets, seesoil slumping to the $40-range it's been stuck in most of the lastsix months.

“Oil could go up to $60, but then the shale drillers come outand the price will likely come back down,” Keigo Matsubara, CFO ofthe Japanese trading house, said in an interview Thursday. “Oilcan't continue over $50.”

The Organization of Petroleum Exporting Countries sent crude oilprices soaring Wednesday after agreeing to its first productioncuts in eight years, a deal designed to drain record global oilinventories. The pact overcame discord between the group's threelargest producers — Saudi Arabia, Iran and Iraq — and ended itspump-at-will policy started in 2014 aimed at protecting marketshare and driving out high-cost drillers.

West Texas Intermediate surged 9.3 percent after the deal wasannounced, the biggest gain in nine months, to close at $49.44 abarrel on Wednesday.

Warnings of a short-term rally echo comments made before thepact was finalized by International Energy Agency ExecutiveDirector Fatih Birol, who said any oil price surge triggered by asuccessful agreement could be snuffed out as global supply surgesback. The output boom could put downward pressure on prices againwithin nine months to a year, he said Nov. 24.

U.S. shale fields could raise production within four months,said Antoine Halff at Columbia University's Center on Global EnergyPolicy. First to pounce should be drillers in the Permian Basin ofTexas and New Mexico, home to gushers prolific enough to spur arecent land rush.

“We do not believe that oil prices can sustainably remain above$55 a barrel, with global production responding first and foremostin the U.S., but also through greater brownfield spendingelsewhere,” Goldman Sachs analysts including Jeff Currie wrote in areport Wednesday.

OPEC's deal was targeted more at reducing excessive globalinventories rather than seeking higher prices, the Goldman Sachsanalysts wrote. By eating away at the global glut, the forwardprice curve flattens, reducing hedging gains by high-cost producersand helping lower-cost suppliers grow market share.

Targeting elevated oil prices above $55 would be“self-defeating,” Goldman analysts wrote.

From: Bloomberg News

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