By Alison Sider and Sarah McFarlane

Oil futures tumbled Tuesday as the dollar rose and doubts about whether major producers will be able to follow through on an agreement to cut production continued to weigh on the market.

Earlier in the day, U.S. crude futures rose above $55 a barrel for the first time since July 2015 on optimism that members of the Organization of the Petroleum Exporting Countries and other major producers, including Russia, will help to drain global stockpiles by cutting production.

But the rally quickly lost steam.

"We just kind of went up too far, too fast on really nothing. The OPEC deal started, but we have no new information," said Dominick Chirichella of the Energy Management Institute. "People are sitting back saying you know what, we need to wait and see what's actually going to happen."

West Texas Intermediate, the U.S. benchmark, settled down $1.39, or 2.59%, at $52.33 a barrel on the New York Mercantile Exchange -- down nearly $3 from the peak of $55.24 in earlier trading. Brent crude, the global oil benchmark, fell $1.35, or 2.38%, to $55.47 a barrel on London's ICE Futures exchange.

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.

Whether oil producers will 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 the new year.

"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 Aspectsin 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."

Confidence in the production agreement was bolstered earlier Tuesday after officials in Oman and Kuwait indicated that they were in the process of enacting the agreed-upon cuts, analysts said.

But many remain skeptical that producers will stick to their agreements. Traders and analysts expect evidence of the cuts to have materialized by late January but are cautious due to OPEC members' checkered history when it comes to adhering to quotas.

Sellers -- who may have been waiting on the sidelines ahead of the holiday weekend -- likely saw an opportunity as oil hit fresh highs, said Mark Waggoner, president of Excel Futures.

"No matter what OPEC does, they're not going to report anything until the end of the month," he said. "The market was run up -- it just got overdone."

The strong U.S. dollar also weighed on crude prices, analysts said. Oil is priced in dollars and becomes more expensive for foreign buyers when the currency rises. The WSJ Dollar Index, which measures the dollar against a basket of other currencies, recently rose 0.29%.

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, but due to the time lag between drilling activity and production, the additional production is yet to come on stream.

Gasoline futures also reversed course, settling down $4.91 cents, or 2.94%, at $1.6218 a gallon. Diesel futures fell 5.15 cents, or 2.98%, to $1.6767 a gallon.

--Dan Strumpf contributed to this article.

Write to Alison Sider at alison.sider@wsj.com and Sarah McFarlane at sarah.mcfarlane@wsj.com

(END) Dow Jones Newswires

January 03, 2017 16:00 ET (21:00 GMT)

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