LONDON  - Oil prices rose on Thursday as a sharp drop in oil stockpiles outweighed concerns that a spike in U.S. coronavirus infections and revived lockdown measures in California could stall a recovery in fuel demand.

U.S. non-farm payrolls increased by 4.8 million in June, the Labor Department reported on Thursday, beating expectations. 

Brent crude futures were up 78 cents or 1.86% at $42.81 a barrel by 1556 GMT, after rising 1.8% in the previous session.

U.S. crude inventories fell 7.2 million barrels from a record high last week, far more than analysts had expected, U.S. Energy Information Administration data showed, as refiners ramped up production and imports eased.

"Typically a drop in inventories signals a positive development in demand or a negative move in supply. But as supply is fairly stable, the market assumes demand stands strong, despite the new COVID-19 infections and restrictions," said Louise Dickson, oil markets analyst at Rystad Energy.

"New lockdowns in California would have depressed the market any other day, but yesterday’s EIA inventory report balanced the bad news and prevailed."

New U.S. COVID-19 cases rose by nearly 50,000 on Wednesday, according to a Reuters tally, in the biggest one-day spike since the start of the pandemic.

California rolled back efforts to reopen its economy, banning indoor restaurant dining in much of the state, closing bars and beefing up enforcement of social distancing and other measures.

Capping gains, however, analysts noted that gasoline stockpiles were higher despite expectations of a fall.

Analysts highlighted worries about the spike in cases in heavily populated U.S. sun belt states, which are among the country's biggest consumers of gasoline.

Attention will be on U.S. driving activity over the upcoming July 4 holiday weekend and how quickly U.S. producers revive shut-in production, analysts said.

(Reporting by Sonali Paul and Seng Li Peng; editing by Richard Pullin and Jason Neely) ((Sonali.Paul@thomsonreuters.com; +61 3 9286 1419))