Oil rose after a volatile run as investors juggled an uncertain supply outlook with concerns that demand in virus-hit China will slip further.

West Texas Intermediate topped $81 a barrel, firming up after a bumpy session on Monday that saw prices briefly plunge on speculation OPEC+ was considering an output hike. Group leader Saudi Arabia and fellow Gulf producer Kuwait both rejected the suggestion, prompting a recovery. The dollar also fell on Tuesday, boosting commodities priced in the currency.

Crude-consumption trends in China remain in the spotlight as repeated Covid-19 outbreaks prompt officials to press on with lockdowns and curbs on movement. Large swaths of the country’s economy are now subject to virus restrictions, hurting the outlook for demand just weeks after investors had speculated Beijing may be moving away from its zero-tolerance stance. 

Covid concerns have led oil prices lower this month, while looming European sanctions on Russian flows -- and a Group of Seven price-cap plan -- have boosted uncertainty, with Chinese buyers pausing some Russian purchases. The cloudy outlook across the market has affected liquidity, with open interest for WTI the lowest since 2014.

Recent volatility “left both buyers and sellers hurting, potentially worsening an already troubled market that is suffering from falling volumes and lower open interest,” said Ole Hansen, head of commodities strategy at Saxo Bank. “Demand concerns, however, broadly remain, with rising virus cases in China.”

High shipping costs have also started to weigh on pricing for actual barrels. On Monday, the industry’s benchmark route broke $100,000 a day, adding to the pressure on physical crude markets against a backdrop of weak Chinese buying. 

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