(Feb 21): Oil pared an earlier drop as investors weighed the prospect for further US monetary tightening against signs of improving demand from China following the end of Covid Zero.

Brent futures traded near US$84 a barrel, after being down as much as 1.7% at one point. Prices have bounced within a relatively tight range this year, and a measure of volatility remains near the lowest level in 13 months.

Market watchers continue to weigh concerns that more Federal Reserve interest-rate hikes will sap demand, against expectations that China’s reopening will drive an increase in commodity buying. The world’s largest importer has been buying more oil from Russia and snapping up ships for cargoes from the US as it ramps up purchases.

“China’s increased oil demand is thus being met to a large extent by higher supply from Russia,” Commerzbank analysts including Carsten Fritsch said in a note. “This may explain why the oil price has not been able so far to profit from the demand growth in China.”

Indian refiners have also boosted processing, lifting rates in January to the highest in five years on the back of rising domestic demand. The country has been a key consumer of Russian crude, taking advantage of discounted cargoes.

The next key event that investors are awaiting is Wednesday’s release of minutes from the Fed’s last meeting. That, and US personal spending data on Friday, may provide further clues of the path for rates.