By Timothy Puko and Neanda Salvaterra 

Oil prices edged up to a fresh one-year high Monday, adding to last week's sharp rally from OPEC's agreement to cut production.

The market is extending gains as many analysts raise hopes the Organization of the Petroleum Exporting Countries is more likely to abide by this deal than others from years past. Its members are notorious for exceeding production quotas, but this time severely bloated stockpiles and the past month's rise in prices may make them more likely to follow through, analysts said.

"Beside they only must be on their best behavior for a few months to get the market into a daily supply deficit," Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said in a note.

Light, sweet crude for January delivery settled up 11 cents, or 2%, to $51.79 a barrel on the New York Mercantile Exchange. It is the highest settlement since July 14, 2015.

Crude prices gained almost 15% last week after OPEC agreed to pull back output by 1.2 million barrels a day. Investors are now waiting for the outcome of a Dec. 10 meeting between the cartel and non-OPEC producers such as Russia, which will also focus on production limits.

Russia has said it is willing to participate in the OPEC deal. But Moscow has failed to follow through on similar agreements in the past.

Energy Aspects is assuming Russian production freezes at 11 million barrels a day, just below its current record high. It also expects OPEC to cut output to 32.8 million barrels a day, within about 400,000 barrels of the cap the group announced last week. The London consultancy is forecasting 82% compliance from within the group, saying Iraq will likely not follow through, but Iran will peak about 200,000 barrels a day below its quota.

"The market should not assume this is just a six-month deal," Amrita Sen, Energy Aspects' chief oil analyst said in a note. "OPEC's primary goal is to run down the inventory overhang rather than target higher prices."

Inventories should shrink by 500,000 barrels a day in the first half of next year because of the agreement, she added. That should keep prices stable at this higher level until investment cuts from outside OPEC lead to more shortfalls and even higher prices starting after 2018, according to Piper Jaffray Cos.' Simmons & Co. International.

But the bank is capping its price forecast until then at about $60 a barrel, it said in a note Monday morning. Inventories are still so high and U.S. shale-drillers could immediately put more oil on the market to take advantage of the recent rally, capping it in a new range between $50 and $60 a barrel, the bank said.

But some are still skeptical of the deal, especially the linchpin of Russian participation. OPEC expects producers from outside the cartel, including Russia, to join with additional cuts totaling 600,000 barrels a day.

"I would be surprised to see any significant action on this side," said Eugen Weinberg, head of commodity research at Commerzbank AG. "Russia is the ultimate beneficiary of this deal because not only do they benefit from the higher oil price but also from the market share they can take from OPEC."

Russia increased its oil production to a record 11.2 million barrels a day in November.

Since Moscow has indicated that any production cut would be based on the November level, the country would still be producing significantly more crude oil in the first half of 2017 than it was just a few months ago, said Commerzbank in an analyst note.

Gasoline futures lost 0.16 cent, or 0.1%, to $1.5575. Diesel futures lost 0.1 cent, or 0.1%, to $1.6571 a gallon.

--Benoit Faucon and Georgi Kantchev contributed to this article.

Write to Timothy Puko at tim.puko@wsj.com and Neanda Salvaterra at neanda.salvaterra@wsj.com

(END) Dow Jones Newswires

December 05, 2016 15:02 ET (20:02 GMT)

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