Oil fell after China signaled no relaxation of its Covid Zero stance, setting back the outlook for consumption in the largest crude importer.

West Texas Intermediate sank toward $91 a barrel, after surging more than 5% last week as speculation about a potential pivot in China’s health strategy and a weaker dollar supported gains. Those hopes were dashed at the weekend, when officials at the National Health Commission’s disease prevention and control bureau said China will “unswervingly” adhere to current Covid controls.

Oil has been buffeted in recent weeks as investors sought to gauge the outlook for demand in China, the impact of looming sanctions on Russian flows amid the war in Ukraine, and a decision by the Organization of Petroleum Exporting Countries and its allies to rein in production from this month. Gathering concerns about a global slowdown and tighter monetary policy have also swung prices. Still, US benchmark prices remain more than 20% higher year-to-date.

“It’s all about China today — the debate about whether it will ease virus restrictions will dictate price action,” said Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. In addition on the supply side, “we have OPEC reducing output this month, as well as the deadline for European sanctions bearing down on us quickly.”

China’s Covid Zero strategy relies on a combination of lockdowns and mass testing to stamp out infections, and its implementation has weighed on the nation’s economy and been a sustained headwind for the global crude market. Countrywide, more than 4,200 new locally transmitted cases were reported for Saturday, an increase from about 3,500 a day earlier.

There’s disappointment “after confirmation that China will stick to its Zero-Covid policy,” said Warren Patterson, head of commodities strategy at ING Groep NV. “We could see some further downward pressure driven by the broader macro picture. However, in the medium-to-longer term, the outlook is still constructive with the market expected to tighten up over 2023.”

Widely watched time spreads eased, signaling less concern about near-term supply. Brent’s prompt spread — the gap between its two nearest contracts — was $1.59 a barrel in backwardation, down from above $2 a week ago. – BLOOMBERG