Crude oil is soaring as OPEC's deal to reduce production kicks in

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.

NOW WATCH: Watch Yellen explain why the Federal Reserve decides to raise rates

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at