Oil fell in tandem with equities as China's stringent measures to combat COVID-19 threatened to depress economic activity and fuel demand even further.

After a session marked by low liquidity, West Texas Intermediate settled near $102 on Tuesday. In the last three weeks, crude has swung within a $15 range as the market weighs the impact of China's Covid wave on demand against supply concerns stemming from Russian crude bans. Investors are also anticipating the largest rate hike in the U.S.

It sank 3.4% as data showing a sharp economic contraction in the world's top oil importer outweighed rising expectations that Europe will agree to limit its purchases of Russian crude. Beijing will close gyms and cinemas during the Labor Day holiday, which runs through Wednesday, while Shanghai will maintain virus precautions.

"Crude is trading sideways as we wait for more information from the EU on the scope of a Russian oil embargo," Rebecca Babin, a senior energy trader at CIBC Private Wealth Managemen, said.

Oil has battled to make further progress since spiking following Russia's invasion of Ukraine. A combination of lower demand in China and reduced supply from Russia has resulted in a period of volatility, rising trading costs, and forcing some traders to exit the market. The wild swings could continue, according to BP Plc on Tuesday.

Meanwhile, the European Union is going to propose a ban on Russian imports by the end of the year, with shipments being restricted gradually until then. While Germany stated that it would be able to reduce its reliance on Russia by the summer, Hungary stated that any sanctions against Russian energy would be vetoed.

In April, oil rose for the fifth consecutive month, marking the longest winning streak since January 2018. Because Russia invaded Ukraine, the U.S. and its allies agreed last month to release strategic crude reserves in a coordinated manner to help ease rising energy prices. Diesel prices have risen in the U.S. as a result of the war.

For the time being, the most severe tightness in the oil market is in diesel. US fuel exports hit new highs. The Gulf Coast is depleting local supplies, pushing diesel margins to new highs. In recent days, retail prices have reached a high point.

While prices have fallen as a result of concerns about lower demand, longer-term indicators point to an oversupplied oil market. Around 1 million barrels per day of Russian crude are currently unavailable, a figure that could more than double this month.