Oil prices rose by more than US$1 a barrel on Monday after top exporter Saudi Arabia raised prices for its crude sold to Asia and the United States, and as indirect US-Iran talks on reviving a nuclear deal appeared to hit an impasse.
Brent crude futures for February gained US$1.61, or 2.3%, to US$71.49 a barrel by 0720 GMT while US West Texas Intermediate crude for January were at US$67.89 a barrel, up US$1.63, or 2.5%.
On Sunday, Saudi Arabia raised January official selling prices for all crude grades sold to Asia and the United States by up to 80 cents from the previous month.
The price hikes were implemented despite a decision last week by the Organization of the Petroleum Exporting Countries and their allies including Russia, a group known as OPEC+, to continue increasing monthly supply by 400,000 barrels per day in January.
Prices were also buoyed by diminishing prospects of a rise in Iranian oil exports after indirect US-Iranian talks on saving the 2015 Iran nuclear deal broke off last week.
Iran says the main challenge to a deal is the United States' reluctance to lift all sanctions while Western powers questioned Tehran's determination to salvage the agreement. The talks are expected to resume this week.
"While the group (OPEC+) has maintained that the decision was purely based on market fundamentals, it is difficult not to see the hand of the US at play, particularly given the visit this week of a US delegation to the kingdom," consultancy JBC Energy said in a note.
"It is almost certain that the Iranian situation was discussed, and Saudi Arabia's approval of the production hike suggests a compromise has been reached and that an improvement in relations with the Biden administration is on cards."
Despite the planned increase, Russia's total output failed to rise as its major producers are probably facing technical difficulties in raising output in line with the current agreement, the consultancy said.
JBC Energy has lowered its base case crude demand outlook over December and January by some 300,000 barrels per day.
The revision has erased most of the supply tightness the market has seen previously, it added.
In the United States, US energy firms maintained the number of oil and natural gas rigs last week.
Omicron has spread to about one-third of US states as of Sunday.
Both crude benchmarks rebounded after falling last week for their sixth week in a row for the first time since November 2018 on concerns that the new coronavirus variant Omicron could impact global economic growth and fuel demand.
Technical charts indicate WTI was oversold which may have attracted buying from short-term traders eyeing a price rebound, CMC Markets analyst Kelvin Wong said.
"The news flow from Omicron is still sketchy with mixed messages from health experts/authorities, thus I do not see a very strong push up in oil prices at this juncture," he added.
Still, the head of International Monetary Fund said the global lender is likely to lower its global economic growth estimates because of the new variant.