Oil recovers after hitting three-week low amid surging COVID-19 cases

© Reuters. FILE PHOTO: A crude oil tanker is seen at Qingdao Port, Shandong province, China, April 21, 2019. REUTERS/Jason Lee/File Photo

By Aaron Sheldrick

TOKYO (Reuters) -Oil prices rose on Tuesday, edging up from a three-week low in the previous session, but gains are likely to be limited on worries that rising COVID-19 cases and restrictions in China will dent fuel demand.

Brent crude was up by 29 cents, or 0.4%, at $69.33 a barrel by 0359 GMT, after falling 2.3% on Monday. U.S. oil was up by 46 cents, or 0.7%, at $66.94 a barrel, having fallen by 2.6% in the previous session.

China on Monday reported more COVID-19 infections in the latest outbreak of the disease that was first detected in the country in late 2019, in what analysts said was the biggest test of Beijing's zero-infection strategy.

Some cities in China, the world's top crude oil importer, have stepped up mass testing as authorities try to stamp out locally transmitted infections of the highly transmissible Delta variant of the coronavirus.

"There is still plenty of uncertainty about how the Covid-19 situation in China will evolve and what this means for oil demand and prices," ING Economics said in a note, adding that a stronger U.S. dollar was also weighing on prices.

In the United States, the Senate is set to vote on the passage of a $1 trillion infrastructure bill later on Tuesday, which, if passed would boost the economy and demand for oil products, analysts said.

But surging cases of COVID-19 are blighting the outlook for economic growth and overall consumption.

"Investors are also questioning the recovery in the U.S. amid rising case numbers. U.S. air travel has plateaued for almost two months amid ongoing travel restrictions," ANZ Research said in a note.

Still, U.S. crude, gasoline, and other product inventories are likely to have dropped last week, with gasoline stocks forecast to fall for a fourth consecutive period, a preliminary Reuters poll showed on Monday. [EIS/S]

Crude oil inventories are expected to have fallen by about 1.1 barrels in the week to Aug. 6, according to the average estimate of six analysts polled by Reuters.