Oil prices decline nearly 5% on jitters over vaccine efficacy

Oil prices tumbled nearly 5% on Tuesday after Moderna's chief cast doubt on the efficacy of COVID-19 vaccines against the Omicron coronavirus variant, spooking financial markets and adding to worries about oil demand.

The head of drugmaker Moderna told the Financial Times that COVID-19 vaccines are unlikely to be as effective against the Omicron variant of the coronavirus as they have been against the Delta variant.

Brent crude futures fell $2.76, or 3.76%, to $70.68 a barrel at 1338 GMT after slipping to an intraday low of $70.22, their lowest since late August.

U.S. West Texas Intermediate (WTI) crude futures fell $2.86, or 4%, close to $67 a barrel, after falling to a session low of $66.51.

Fed Chairman Jerome Powell will also tell U.S. lawmakers later in the day the variant could imperil economic recovery, prepared remarks show.

"The economic impact is driven by fear, and by the policy response... Fear is impacting travel. There are outright bans. But also the fear of being stranded which causes travel plans to alter," Paul Donovan from UBS said in a note.

Oil plunged around 12% on Friday along with other markets on fears the heavily mutated Omicron would spark fresh lockdowns and dent global oil demand. It is still unclear how severe the new variant is.

With a weakening demand outlook , expectations are growing that the Organization of the Petroleum Exporting countries, Russia and their allies, together called OPEC+, will put on hold plans to add 400,000 barrels per day (bpd) to supply in January.

"We think the group will lean towards pausing output hikes in light of the Omicron variant and the oil stockpile release by major oil consumers," Commonwealth Bank commodities analyst Vivek Dhar said in a note.

Pressure was already growing within OPEC+, due to meet on Dec. 2, to reconsider its supply plan after last week's release of emergency crude reserves by the United States and other major oil-consuming nations to address soaring prices.

"Following the global strategic reserve releases and the announcement of dozens of countries restricting travel... OPEC and its allies can easily justify an output halt or even a slight cut," OANDA analyst Edward Moya said in a note.

(Reporting by Noah Browning, Sonali Paul and Florence Tan; Editing by Lincoln Feast, Ana Nicolaci da Costa, Himani Sarkar and Louise Heavens)