By Sarah McFarlane and Dan Strumpf

Oil futures began the year with a jump Tuesday, with Brent hitting a more-than one-year high, boosted by optimism that the crude production cuts agreed to late last year will help to drain global stockpiles.

The Organization of the Petroleum Exporting Countries, along with other oil producing countries including Russia, agreed to cut output by 1.8 million barrels a day or around 2% of global production starting this month. Oil prices have gained around 25% since the Nov. 30 OPEC agreement.

Whether oil producers stand by their agreement and cut, and how U.S. drillers respond to continued price rises, will help set direction for the oil market into thenew year. Many analysts are skeptical that producers would stick to their agreements, but on Tuesday market participants were betting that they will.

Brent crude, the global oil benchmark, rose 2.15% to $58.04 a barrel on London's ICE Futures exchange, having earlier peaked at $58.37, its highest level since July 2015. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 2.25% at $54.94 a barrel.

"It may be moving in anticipation that evidence will emerge that stocks are coming off," said Gareth Lewis-Davies, senior commodity strategist at BNP Paribas.

Oil prices last year posted their biggest gains since the financial crisis-era rebound in 2009, a recovery fueled by the apparent willingness of OPEC to cut supply again. Stocks remain at high levels, however, with global inventory estimated at around 3 billion barrels. "As long as this strong belief keeps holding, prices will remain supported andcould rise further, which is no longer justified fundamentally."

Traders and analysts expect evidence of the cuts to have materialized by late January but are cautious due to OPEC member's checkered history when it comes to adhering to quotas.

"It's going to be a year in which price action is driven by OPEC and these cuts," said Virendra Chauhan, oil analyst at Energy Aspects in Singapore. "It's going to be very much a case of the extent that these guys are complying with the production cuts set at the end of November."

A risk to the sustained recovery of the oil market will be how U.S. oil producers respond to the higher oil prices, after the production cut deal sent prices back above $50 a barrel. Already, U.S. shale producers have responded to last year's price rebound by adding rigs, and any steep increase in prices is likely to spur more drilling.

U.S. oil rig numbers have been steadily rising since last summer, butdue to the time lag between drilling activity and production, the additional production is yet to come on stream.

"U.S. production will rise sooner rather than later and stronger than expected because of elevated prices," added Mr. Fritsch.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 1.8% to $1.70 a gallon. ICE gasoil changed hands at $513.00 a metric ton, up $12.00 from the previous settlement.

Write to Sarah McFarlane at and Dan Strumpf at

(END) Dow Jones Newswires

January 03, 2017 08:00 ET (13:00 GMT)

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