By Sarah McFarlane, Alison Sider and Jenny W. Hsu

Oil prices rose to some of their highest prices of the year Thursday, building on gains made after OPEC struck a long-sought agreement to reduce production by 1.2 million barrels a day.

U.S. crude futures briefly topped their one-year-high of $51.60, hit in October, before settling at $51.06 a barrel on the New York Mercantile Exchange, up $1.62, or 3.28%, from Wednesday's close. Brent, the global benchmark, gained $2.10, or 4.05%, to $53.94 a barrel -- the highest settlement value since August 2015.

The agreement struck by representatives of the Organization of the Petroleum Exporting Countries markedthe group's first concerted effort to slash output since 2008.

Market participants were skeptical in the days leading up to the meeting that major producers would be able to put aside their differences, and the deal caught some by surprise. U.S. crude futures rose more than 9.3% Wednesday.

And questions remain about whether countries will stick to the agreement. But optimism is growing that the cut, representing about 1% of global production, will help to reduce a supply glut that has depressed prices for more than two years.

"Market forces have brought supply and demand back close to balance already. The cuts are more intended to accelerate the rebalancing process and in particular the drawdown of the large inventory overhang," said Gordon Gray, global head of oil and gas equity research at HSBC.

The group is expected to reassess the effectiveness of the deal in six months.

Analysts say the biggest question remains enforcement, as OPEC has no authority to make its members comply. OPEC members have a history of producing beyond their allotted quotas. Adam Longson, commodities analyst at Morgan Stanley, said that OPEC exceeded its quota by an average of 883,000 barrels a day from 2000-2008.

"Do I think there's a possibility these guys will not honor their quotas? Yes. They've proven in the past numerous times that they can get out of the market what they want," said Gene McGillian, research manager for Tradition Energy.

Still, analysts were hopeful that the agreement could move oil supply and demand closer together more quickly than would happen if OPEC members keep pumping at current high levels, even if the actual cuts turn out to be smaller than what was announced.

"While we acknowledge that OPEC's record of delivering on production cuts has historically been poor, on a net basis we expect this to tighten crude markets," said Scott Darling, the head of Asia-Pacific oil and gas research at J.P. Morgan.

And some said markets have been buoyed by the signal that OPEC is returning to its policy of taking collective action to keep prices from cratering -- a reversal from two years ago when the group essentially lifted all output quotas, allowing more supply to come to an already flooded market.

"Although this may seem like a drop in the bucket of rebalancing the global supply/demand equation, the coordination seems to be enough for the markets to hang their hat on for now," analysts at TAC Energy wrote in a research note Thursday.

Higher prices, however, are likely to cause more U.S. shale producers to increase production.

The latest production data from the U.S. Energy Information Administration showed U.S. production increased by 9,000 barrels a day to 8.7 million barrels for the week ended Nov. 25.

"There is a real risk that higher prices could reactivate more dormant shale oil," said ANZ Research, which expects international oil prices to hit strong resistance at around $60 a barrel in early 2017.

Another wild card is the cooperation of non-OPEC producers, which are expected to decrease production by 600,000 barrels a day. Russia said it would cut production by 300,000 barrels a day, though it isn't clear how much of that will come from already expected declines.

"In fact, we're not even fully confident that Russia will freeze production, particularly if the market tempts them with higher prices," said Tim Evans, a Citi Futures analyst.

Gasoline futures rose 6.45 cents, or 4.35%, to settle at $1.547 a gallon. Diesel futures rose 7.16 cents, or 4.54%, to $1.6479 a gallon.

Write to Sarah McFarlane at, Alison Sider at and Jenny W. Hsu at

(END) Dow Jones Newswires

December 01, 2016 15:58 ET (20:58 GMT)Copyright (c) 2016 Dow Jones & Company, Inc.