By Marco Quiroz-Gutierrez

Oil prices fell Friday, dragged lower by growing worries that the pandemic will spur greater restrictions on travel and economic activity.

U.S. crude prices dropped around 1.4% to $52.38 a barrel, on track to end two sessions of gains. Oil has stayed in a tight trading range recently as investors weigh worries about crumbling consumption against large supply reductions.

Prices have increased steadily since the beginning of the year, with the U.S. benchmark passing $50 a barrel last month for the first time since early last year. That was when a production fight between major producers flooded global markets just as the pandemic's first round of shutdowns sent consumption plunging. An oil glut threatened to overwhelm storage, sending prices below $0 for the first time.

Signs that major producers intend to continue output cuts, as well as a faster-than-expected economic recovery in China, have since powered a rebound. Many traders now say further gains require an acceleration in demand from increased travel and a broader reopening.

Denting those hopes in recent sessions: the slow rollout of vaccines and warnings of ongoing pandemic restrictions. The Biden administration in recent sessions reimposed mask restrictions, warned of a mounting death toll and said it could take months to turn things around.

A quick recovery in China has helped markets globally, but Robert Yawger, director of energy futures at Mizuho Securities USA, said increasing rates of infection in China could hurt prices.

"The potential for the virus to blow up and expand above and beyond the 28 million that are already locked down is a real threat to demand," Mr. Yawger said.

Oil-field services company Schlumberger Ltd. said Friday that it would take two more years for oil demand to return to pre-pandemic levels, but demand could steadily increase in 2021. Supply cuts from the Organization of the Petroleum Exporting Countries, along with the Covid-19 vaccine rollout and further economic stimulus, could still lift prices, the company said.

Analysts are also watching for signs that supply might drop following the Biden administration's recent steps to stop drilling on federal lands and waters. An apparent lack of urgency on lifting sanctions on Iran could also limit global output and support prices, traders say.

Despite Friday's declines, many still expect oil to climb later in 2021 as demand recovers. Capital Economics analysts said in a Friday note that vaccine distributions could spur a pickup in travel in developed countries in the second half of 2021, boosting prices.

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Collin Eaton

contributed to this article.

(END) Dow Jones Newswires

January 22, 2021 12:33 ET (17:33 GMT)

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