(Bloomberg) — The oil market continued its climb on optimism about the potential omicron virus variant not being as severe as people feared. This has eased concern regarding the demand outlook.

West Texas Intermediate rose by 5.1% Tuesday before closing the day at $72 per barrel. Crude’s advance mirrored a similar relief rally in equities, with the jumping 2.2% to the highest level since late November. Initial data show the surge in omicron cases hasn’t overwhelmed hospitals so far, and there’s little evidence of a significant hit to global oil consumption.

“While there is probably going to be some demand destruction because of omicron, the market priced in a lot worse than what it’s going to be,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “We are getting back to more real fundamentals versus the fear fundamentals we were trading on last week.”

Some oil analysts saw oil’s plunge in recent weeks as driven by low liquidity and so-called negative gamma effects, where options dealers are forced to sell futures contracts to hedge their risk. When oil prices rise as they have recently, traders may buy back any futures that they sold to fuel the rebound. 

“The sigh of relief rally continues for a second day in energy and equity markets, and volatility indices are moving lower as the Omicron fears appear to be subsiding,” TACenergy analysts wrote in a note to clients. 

Last week, crude oil fell due to concerns about its omicron variant. Due to travel restrictions, U.S. Energy Information Administration reduced its WTI and global benchmark projections by almost $2 per barrel on Tuesday. 

Prices have continued to rise this week, despite the fact that there has been very little demand from Omicron. Citigroup Inc (NYSE:). said on Tuesday it is bullish prices in the short-term, and Saudi Arabia’s move on Sunday to increase the cost of its crude for January gave the market confidence that the consumption outlook would remain robust.

Bullish sentiment is tempered by the possibility of an agreement to remove sanctions on Iran’s oil exports at over 1,000,000 barrels per day, according to Helima Croft, a RBC analyst.

According to sources familiar with data, the American Petroleum Institute reported that stockpiles dropped by 3.1million barrels last week. However, inventory at Cushing’s storage hub, along with gasoline and distillate stocks, increased.

Citi stated the oil market would recover from the recent losses. However, the report painted a more negative picture of the future. The curve is expected to see prices fall as OPEC+ countries look to pump more oil and non-OPEC+ supplies remain available at $50 to $60 a barrel. 

France has closed nightclubs in France for the next four weeks because of Omicron, New York City demanded a mandate for private sector vaccinations and Hong Kong placed quarantine restrictions on additional countries. The Eastern Chinese city of Ningbo imposed a lockdown on its Zhenhai district and closed some schools to stem a local outbreak, echoing the country’s strict Covid-Zero strategy that doesn’t tolerate any sorts of flareups.

Meanwhile, over the past week some traders have bet on the small chance that WTI’s discount to Brent will surge past $10 a barrel next year. This long-shot bet is an indication that market participants think the Biden administration might intervene again in order to lower oil prices.

©2021 Bloomberg L.P.