Oil rose to an 18-month high on Monday after OPEC and some of its rivals reached their first deal since 2001 to jointly reduce output to tackle global oversupply, though prices slipped late in the day.
On Saturday, producers from outside the Organization of the Petroleum Exporting Countries, led by Russia, agreed to reduce output by 558,000 barrels per day, short of the target of 600,000 bpd but still the largest non-OPEC contribution ever.
That followed OPEC's Nov. 30 deal to cut output by 1.2 million bpd for six months from Jan. 1. Top exporter Saudi Arabia will cut around 486,000 bpd to reduce the supply glut that has dogged markets for two years.
Crude futures have rallied sharply, with U.S. oil futures gaining 23 percent since the middle of November as optimism that an agreement would be reached started to grow. There is some concern amongst analysts that the big move in crude is not sustainable, and that the market may have overshot given the expectation that various producers would not comply with the cuts they agreed upon.
"Right now the market is kind of feeding on itself," said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut.
"The market could push another $1 to $2 up to $55, and Brent could go to about $60, but at that point there are some concerns that are going to start to cap the rally."
On Monday, U.S. crude futures settled up $1.33 at $52.83 a barrel, a 2.6 percent gain, though that was sharply off the day's highs. Prices continued to fall following settlement, with crude up just 98 cents to $52.48 at 3:22 p.m. ET (2022 GMT).
Brent crude futures settled up $1.36 at $55.69 per barrel, a 2.5 percent rise, after hitting a session peak of $57.89, highest since July 2015.
"Overnight we had a knee-jerk rally to the highs, but the market is going to try to analyze" the non-OPEC agreement going forward, said Andrew Lebow, managing partner at Commodity Research Group.
For the deal to be effective, all parties must stick to their word. Higher prices also raise the chances of other producers boosting output, particularly U.S. shale operators, where rig counts have grown steadily in recent months.
U.S. production remains about 1 million bpd below its peak of 9.6 million reached in 2015, according to U.S. Energy Department data.
Further, several of the non-OPEC countries are still increasing their production. Russia, for instance, does not expect to reach its target until April or May, and several other countries are expected to experience only natural declines, which will not necessarily affect the supply situation.