Storage tanks at Marathon Petroleum's Los Angeles Refinery in Carson, California
Storage tanks are seen at Marathon Petroleum's Los Angeles Refinery, which processes domestic & imported crude oil into California Air Resources Board (CARB) gasoline, CARB diesel fuel, and other petroleum products, in Carson, California, U.S., March 11, 2022. Reuters

Oil prices rose more than $1 on Friday on expectations of a drop in Russian crude supply, which helped offset worries of a hit to U.S. transport fuel demand growth as a looming Arctic storm threatens travel during the holiday season.

Brent crude was up by 66 cents, or 0.8%, to $81.64 a barrel by 0440 GMT, while U.S. West Texas Intermediate (WTI) crude was at $78.27 a barrel, up 78 cents, or 1% higher.

They hit highs of $82.17 and $78.77, respectively, earlier in the session. Both contracts were on track to post a second weekly gain, with Brent up 3.3% and WTI up 5.4%.

Russia's Baltic oil exports could fall by 20% in December from the previous month after the European Union and G7 nations imposed sanctions and a price cap on Russian crude from Dec. 5, according to traders and Reuters calculations.

Russia may cut oil output by 5%-7% in early 2023 as it responds to price caps on its crude and oil products by halting sales to the countries which support them, the RIA news agency cited Deputy Prime Minister Alexander Novak as saying on Friday.

"Crude prices are higher as energy traders focus on Moscow's response to the price cap put on Russian oil and not so much the thousands of flight cancellations that will disrupt holiday travel," OANDA analyst Edward Moya said.

More than 4,400 U.S. flights have been cancelled over a two-day period due to the winter storm, coinciding with a holiday travel season that some predict could be the busiest ever.

On Thursday, oil prices on both sides of the Atlantic settled lower as flights were scrapped. The snow storm could also upend motorists' plans to travel during Christmas and New Year, curbing gasoline consumption.

However, heating oil demand could be boosted as the extreme weather is expected to cause power outages.

"As U.S. crude oil inventories fall and winter storms hit the U.S., cold temperatures are expected to extend southward to Texas, Florida, and the eastern states. Demand for heating oil will soar," Leon Li, an analyst at CMC Markets, said.

U.S. crude stocks fell more than expected in the week to Dec. 16 as imports dropped sharply, the Energy Information Administration said, with inventories falling by 5.9 million barrels to 418.2 million barrels versus forecasts for a 1.7 million-barrel drop. [EIA/S]

However, surging COVID-19 cases in the world's No.2 oil consumer China, concerns about further rate hikes globally and recession curbing fuel consumption limited oil's price gains.

"The oil market's biggest wildcard is China and optimism is still strong that the reopening will continue and eventually lead to more demand," OANDA's Moya said.