Oil prices rebound from sharp drop on China demand concerns

Oil prices opened slightly higher on Tuesday, after falling sharply the prior session on worries that continued Covid-19 lockdowns in China would eat into demand and as the U.S. dollar rose to a two-year high

Brent crude futures settled 2.6% higher at $104.99 per barrel and U.S. West Texas Intermediate contracts settled the day 3.2%, or $3.16, higher at $101.70 per barrel

Both contracts had settled down around 4% on Monday, with Brent down as much as $7 a barrel in the session and WTI dipping roughly $6 a barrel

In China lockdowns to counter Covid in Shanghai have dragged into their fourth week. Meanwhile orders for mass testing, including in Beijing’s largest shopping district, have prompted fears of other Shanghai-style lockdowns

“The hit from Chinese lockdowns is over a million barrels a day and the testing of 12 districts over the next five days will determine the next major move for crude prices,” wrote Edward Moya, a senior market analyst for OANDA in a note

The U.S. dollar also hit a two-year high on Monday, making oil more expensive for other currency holders

“Supply fears are not the primary focus for energy traders, and now you have a surging dollar that is adding extra pressure across all commodities,” OANDA’s Moya said