Brent crude futures settled up 80 cents, or 1.2%, at $69.67 a barrel after touching a low of $65.72 on the day, while U.S. West Texas Intermediate (WTI) crude futures rose 93 cents, or 1.4%, to $66.50, after dipping as low as $62.43.
The market sold off dramatically after the Organization of the Petroleum Exporting Countries and its allies known as OPEC+ issued a bit of a surprise by sticking to plans to boost output monthly by 400,000 barrels per day.
It was the latest in a series of events that have caused crude to slump wildly, having lost 24% in the last three weeks.
Oil futures rebuilt the rally by the end of the day, but the combination of uncertainty around the Omicron variant, efforts by governments to stem the tide of new infections and expectations for more supply kept traders on their toes.
"The markets have just been trying to digest so much news," said Rebecca Babin, senior energy trader at CIBC Private Wealth US. "It's like a python eating a pony."
Commodity trading advisors as well as institutions and hedge funds have been selling as well, closing out positions after an overall strong year for crude futures.
OPEC+ decided on Thursday to boost supply in January in line with previous months. Since August, it has been gradually winding down record cuts agreed to in 2020.
"I think the OPEC decision is sending a signal of confidence that they believe the price action recently has been overdone," said Phil Flynn, senior analyst at Price Futures Group.
The White House said it welcomed the decision, but added that the United States had no plans to reconsider its decision to release crude reserves.
OPEC+ has been adding 400,000 bpd to its target, but falling well short of that on a monthly basis due to underinvestment in several members' oil industries.
The additional supply comes as markets grapple with the lack of clarity on the severity of the Omicron variant of the coronavirus and whether vaccines will remain effective against it.
U.S. President Joe Biden said his administration's plan to fight COVID-19 does not include shutdowns but added that experts believed coronavirus cases will continue to rise in the winter.
U.S. Treasury Secretary Janet Yellen warned that the variant could slow global economic growth.
Meanwhile, the European Union's public health agency also said the variant could be responsible for more than half of all COVID-19 infections in Europe within a few months.
Still, JP Morgan Global Equity Research remained bullish on oil prices and said they were expected to overshoot $125 a barrel next year and $150 in 2023 due to capacity-led shortfalls in OPEC+ production.
(Additional reporting by Yuka ObayashiEditing by Marguerita Choy, Mark Potter and Mark Porter)
By Arathy Somasekhar