By Sarah McFarlane and Jenny W. Hsu

Crude futures surged Wednesday on growing optimism that OPEC would agree on a deal to cut oil production later in the day.

But prices remained volatile, and many analysts continue to doubt that a deal, if struck, would be properly enforced or would even be enough to address a supply imbalance that has pressured the market for more than two years.

The February contract in Brent crude, the global oil benchmark, gained 7.5% to $50.90 a barrel on London's ICE Futures exchange, on track for its biggest daily gain since February, according to FactSet. On the New York Mercantile Exchange, West Texas Intermediate futures gained 7.3% to $48.55 a barrel, FactSet said.

Prices began to rally after Iran's oil minister, Bijan Zanganeh, said ahead of crunch talks in Vienna that he believed the Organization of the Petroleum Exporting Countries would reach a deal, though he said an immediate freeze of his country's output wasn't on the agenda.

Oil prices received another boost on reports that OPEC had reached consensus to cut production to 32.5 million barrels a day, meaning the cuts would be about 1.2 million barrels, the sort of level many analysts had expected.

Talk of OPEC reaching a deal has dominated the oil market for much of the year, as geopolitical maneuvering by key producing nations stopped the cartel from tackling the global oversupply. A proposal would likely have the group cut production by more than a million barrels a day, which represents about 1% of the global oil supply.

That could send oil prices to as much as $55 a barrel, thoughthe lack of a deal would see crude crash back down to around $40 again, some analysts said.

"We're still heading upwards," said Richard Mallinson, analyst at consultancy Energy Aspects, adding that there would need to be evidence of the cuts for a more sustained rally. Still, "in the case of (a) deal, whilst there will be an immediate boost to sentiment, there is a lot of skepticism out there."

Iran's willingness to participate in some way -- a long-held Saudi demand -- signals a greater likelihood that all OPEC members will agree to a deal.

A successful OPEC accord is also crucial in getting non-OPEC producers -- such as Russia -- to slash production in a collective effort to lift global oil prices. Russia has said it wouldn't make any commitment until an agreement was forged by OPEC members.

In the past year, OPEC leaders have tried several times to agree on production curbs, but these attempts have failed, causing highvolatility in oil markets.

Tension between Iran and Saudi Arabia has also been a sticking point. Even though Iran has relaxed its position by agreeing to hold production levels steady -- a step back from a previous demand to keep pumping -- it remains to be seen whether Saudi Arabia will be satisfied.

"The fact that geopolitical rivals, Saudi Arabia and Iran, appear to have problems resolving their differences on the allocation of any cartel-wide production cuts seems to be the major stumbling block to any agreement," said Barnabas Gan, an economist at OCBC bank in Singapore.

Iraq, OPEC's second-largest producer after Saudi Arabia, also wants to be excluded from a deal, saying it would only go as far as capping production at present levels. Iraq says it needs the oil revenue to fund its war against Islamic State.

If OPEC fails to reach an agreement, a "blame game" could ensue, with Saudi Arabia pointing fingers at Iran and Iraq for being unwilling to compromise, said Tim Evans, a Citi Futures analyst.

Market players have gotten used to disappointment from OPEC.

"This apparent stalemate has seen investors take an increasingly bearish view on oil prices," said ANZ Research. ANZ added that despite the squabbling, OPEC is under growing pressure to deliver a deal to protect its relevance.

As they waited for news, analysts and investors debated how the market would react to a production deal.

Commerzbank predicted a "small" cut of 700,000 barrels a day, which would keep the oil price around $50.

If OPEC cuts around 1 million barrels a day, as the market currently expects, that could push prices into the mid $50s and toward $60 in 2017, said Richard Mallinson, analyst at consulting firm Energy Aspects.

BNP Paribas and Standard Chartered predicted cuts of between 1 million and 1.5 million barrels that would boost the price to just above $50.

Paul Horsnell, head of commodities research at Standard Chartered said that while this offered some relief to producers, $50 was still too low to see a revival of investment in oil projects.

If OPEC fails to agree on cuts, that would send crude plunging to $40 a barrel, Commerzbank said.

Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- rose 3.6% to $1.43 a gallon. ICE gasoil changed hands at $445.75 a metric ton, up $20.25 from the previous settlement.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

November 30, 2016 09:21 ET (14:21 GMT)

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