By Ahmad Ghaddar
Oil prices rose on Wednesday, erasing earlier losses, after an incident involving a commercial vessel off the coast of Oman, but rising COVID-19 cases in China capped gains.
Brent crude futures gained 65 cents, or 0.7%, to $94.51 a barrel by 0854 GMT, and U.S. West Texas Intermediate (WTI) crude futures rose 35 cents, or 0.4%, to $87.27 a barrel. Both benchmarks fell more than $1 earlier in the session.
The United States Navy's Fifth Fleet said it aware of an incident on Wednesday in the Gulf of Oman involving a commercial vessel, Commander Timothy Hawkins (NASDAQ:HWKN) told Reuters.
The Associated Press had reported that a Liberian-flagged oil tanker operated by the Singapore-based Eastern Pacific Shipping was struck in an exploding drone attack off the Gulf of Oman.
Oil prices settled higher on Tuesday after oil supply to parts of Europe via a section of the Druzhba pipeline was temporarily suspended, according to oil pipeline operators in Hungary and Slovakia.
The disruption was concurrent with an explosion in eastern Poland near the Ukraine border that killed two people and raised the possibility that the Russian-Ukraine conflict could spill over.
But after the initial "knee-jerk rally in oil prices, the tepid market follow-through reflects the significant prudence that will be taken to avoid an escalation," said Stephen Innes, managing partner at SPI Asset Management.
U.S. President Joe Biden's comments that the missile was probably not fired from Russia also helped to ease immediate escalation worries, Innes said.
In China, rising COVID-19 cases weighed on sentiment after an easing of virus restrictions this week.
"Oil demand growth in the country is being hampered by its unyielding faith in a zero-tolerance COVID-19 policy and persistent economic weakness," PVM Oil analyst Stephen Brennock said.
The International Energy Agency (IEA) forecast demand growth to slow to 1.6 million bpd in 2023 from 2.1 million bpd this year.
Earlier, the Organization of the Petroleum Exporting Countries (OPEC) cut its forecast for 2022 global oil demand growth for a fifth time since April, citing mounting economic challenges.
Industry data showing a bigger-than-expected drop in U.S. crude stockpiles provided some support to oil prices. [API/S]
U.S. crude oil inventories fell by about 5.8 million barrels for the week ended Nov. 11, market sources said, citing American Petroleum Institute figures.
By comparison, seven analysts polled by Reuters estimated on average that crude inventories dropped by about 400,000 barrels.