Crude oil futures rallied to the strongest level in 18 months on Tuesday.
An agreement between the Organisation of Petroleum Exporting Countries (OPEC) and some non-members to reduce their output kicked in on January 1. In November, OPEC reached its first production deal in eight years, vowing to lower output by 1.2 million barrels a day to boost prices.
Crude oil rallied after the announcement, and finished the year up by 45%, its biggest annual gain since 2009.
On Tuesday, West Texas Intermediate crude oil futures, the US benchmark, gained 2.4% to $55.01 per barrel. Brent crude, the international benchmark, rose 2.3% to $58.15.
Whether OPEC members will stick to their production limits is uncertain. In a statement on Monday, Saudi Arabia’s cabinet urged OPEC members to implement their agreement, according to Reuters.
“Market sentiment is likely to hinge entirely on the compliance of OPEC and non-OPEC nations as well as the capability of exempt countries (Libya, Nigeria) to increase production,” said Accendo Markets’ Mike van Dulken in a note.
Also, higher oil prices have encouraged US shale producers to ramp up production. The count of active oil rigs rose last week for a ninth straight week, increasing the combined tally to the highest level in one year, according to Baker Hughes.