Oil prices rose on Wednesday on fears of tight supply and a drawdown in U.S. inventories, despite worries about the likely hit to economic activity from the spread of the Omicron coronavirus variant.
U.S. inventories fell more than expected, with crude stocks down by 4.7 million barrels, though that is in part due to year-end tax considerations that encourage companies not to store crude barrels.
Brent crude futures settled $1.31, or 1.77%, higher at $75.29 a barrel after gaining 3.4% in the last session.
U.S. West Texas Intermediate (WTI) crude futures advanced $1.64, or 2.3%, to settle at $72.76 per barrel.
"We saw a drop in production, we saw inventories and crude fall, so that's giving the market a supportive outlook," said Phil Flynn, senior analyst at Price Futures Group in Chicago. "Because supplies are below average across the board, there's not a lot of room for error."
Gasoline storage rose sharply in the most recent week, fanning worries that U.S. travellers were abruptly changing plans, potentially hurting demand in the world's largest gasoline consumer.
"Covid is killing demand for gasoline in just a week - people driving is just not happening," said Bob Yawger, director of energy futures at Mizuho Securities.
Coronavirus-driven mobility curbs across the globe added to fears of a drop in fuel demand. Germany, Ireland, the Netherlands and South Korea are among countries that have reimposed partial or full lockdowns or other social distancing measures in recent days.
It is still unclear whether the Omicron variant is more deadly than Delta, the strain which has been dominant in recent months. A study from South Africa suggested the virus was less likely to send people to the hospital than Delta as governments worldwide try to contain the rapid spread of the variant.
Moderna Chief Executive Officer Stephane Bancel said on Tuesday that the vaccine manufacturer does not expect any problems in developing a booster shot to protect against the Omicron variant and could begin work in a few weeks.
Pfizer, one of the primary manufacturers of COVID-19 vaccines, said its antiviral COVID-19 pill was approved for at-home use. It targets people who have contracted the virus and is effective at reducing symptoms and hospitalizations, the company said.
On the supply side, investors are looking ahead to a meeting of the OPEC+ producers group on Jan. 4.
With the growing production issues in Russia and various others in the Atlantic Basin, it is likely that Middle Eastern producers could push for a continuation of monthly quota increases, consultancy JBC Energy said in a note.