In late 2016, the OPEC (Organization of the Petroleum Exporting Countries) had made a decision to cut crude oil production and 11 non-OPEC nations had agreed to reduce production by 558,000 barrels per day.
Early on January 3, Brent futures and US West Texas Intermediate (WTI) crude hit their highest levels since July 2015 with Brent reaching $58.37 and US $55.24, Reuters reported.
January 1 marked the official start of a deal agreed to by OPEC and other exporters like Russian Federation to reduce output by nearly 1.8 million barrels per day.
Non-OPEC member Russia's oil production in December remained unchanged at 11.21 million bpd, but it was preparing to cut output by 300,000 bpd in the first half of 2017.
The production cut, which was agreed last month, came into effect on Sunday.
Also reflecting a tightening market, traders expect top oil exporter Saudi Arabia to raise the official selling price for its crude to Asia in February.
WTI light sweet crude oil for Feb was up USD1.29 at USD55.01 a barrel, the highest in more than a year.
However, U.S. shale is also expected to respond to higher oil prices, which implies limited upside above the high-$50s, Goldman Sachs says.
But doubts have emerged over whether the planned cuts will be big enough to rebalance the market.
It said the good run in oil prices in 2016 may lose some steam in 2017 with the persistence of supply-demand imbalances amid uncertainties stemming from the likely recovery in U.S. shale production, potential policy changes from an incoming Trump administration and European Union's deteriorating political cohesiveness driven by Brexit against the backdrop of growing right-wing sentiments and an immigration crisis.
Oil in morning trade is over US $53 per barrel. Saudi output slipped by 50,000 barrels a day to 10.48 million in December, according to a Bloomberg survey.
The stock prices of BP follow a close pattern with the oil prices.
The OPEC agreement is often played down due to speculation about cheating by nations involved in the agreement and over concerns about increased production in countries that are not part of the agreement.