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LONDON  - Oil prices rallied on Wednesday after recent sharp drops as major producers started to discuss future output against the backdrop of the Omicron variant of the coronavirus triggering fresh travel restrictions which could dampen oil demand.

Equity markets, which often move in tandem with oil prices also rebounded as investors bought the previous session's dip in the hope that Omicron would not derail an economic recovery.

Brent crude futures for February rose $2.10, or 3%, to $71.33 a barrel at 1331 GMT.

U.S. West Texas Intermediate (WTI) crude futures rose $1.91, or 2.9%, to $68.09 a barrel. Both contracts retraced some of their gains after an OPEC+ document showed the group forecasts a bigger oil surplus in the new year.

Both Brent and WTI front-month contracts in November posted their steepest monthly falls in percentage terms since March 2020, down 16% and 21% respectively.

The Organization of the Petroleum Exporting Countries started a meeting around 1320 GMT, ahead of a meeting on Thursday of OPEC+, which groups OPEC with allies including Russia.

Some analysts expect OPEC+ to pause plans to add 400,000 barrels per day of supply in January.

OPEC+ sees the oil surplus worsening to 2 million barrels per day (bpd) in January, 3.4 million bpd in February and 3.8 million bpd in March next year, an internal report seen by Reuters showed.

"There is much to suggest that OPEC+ will not initially step up its oil production any further in an effort to maintain current prices at around $70/bbl," PVM analyst Stephen Brennock said.

"OPEC+ have erred on the side of caution since it began slowly boosting supplies and a decision to shelve a planned increase output in January and keep its quota flat comports with its cautious approach."

Several OPEC+ ministers, though, have said there was no need to change course.

But even if OPEC+ agrees to go ahead with its planned supply increase in January, producers may struggle to add that much.

A Reuters survey found OPEC pumped 27.74 million bpd in November, up 220,000 bpd from the previous month, but that was below the 254,000 bpd increase allowed for OPEC members under the OPEC+ agreement.

In a bearish sign for demand, data from the American Petroleum Institute industry group showed U.S. crude stocks fell by 747,000 barrels in the week ended Nov. 26, according to market sources, a smaller decline than expected.

Government stockpile data is due at 1530 GMT. [EIA/S]