China’s aggressive approach to containing Covid-19 is likely to dent the country’s demand for oil, analysts at Commerzbank wrote in a Monday note to clients, after rising cases sent half of Shanghai into lockdown. Public-transit lines were suspended and some manufacturers paused operations.

Tesla Inc.

TSLA 0.71%

said it would close production there for four days.

“There was some hope that China this time around would not go through a lockdown, but the message from the country is that that’s out of the question,” said Natasha Kaneva,

J.P. Morgan’s

head of global commodities research. “I think the market is definitely afraid of what is coming next.” 

A reduction in demand from China could ease pressure on global markets after prices surged to multiyear highs following Russia’s invasion of Ukraine. Traders, banks, insurers and shipping companies have shunned Russian oil and shortfalls have begun hitting the market, with many predicting more ahead. The rise in prices has translated into more expensive gasoline—now averaging over $4.20 a gallon in the U.S. according to AAA—denting consumers’ wallets and contributing to persistent inflation.

Western drillers such as

BP PLC

and

Shell PLC

have pulled out of Russia, as have companies including

Halliburton Co.

and

Baker Hughes Co.

that provide technical services in oil fields. Russia’s exporters have turned to selling crude at steep discounts in off-market transactions that allow buyers to shield their identities from the stigma of trading with Russian firms.

Meanwhile, U.S. oil producers face bottlenecks hampering their ability to respond to higher prices by expanding their output. Ramping up drilling takes time—especially after many domestic drillers already tapped a large portion of their ready-to-go wells as fuel demand recovered since the start of the pandemic. Disappointing returns on oil drilling during the 2010s have also reduced investors’ appetite for big capital outlays to expand production.

Investors will look for more clarity on the supply outlook from Thursday’s meeting of the Organization of the Petroleum Exporting Countries. The group of oil-rich states will most likely modestly increase supply in accordance with its long-term plan, without adjusting to make up for the fall in Russian exports, analysts at Ritterbusch & Associates wrote.

Robert Howell, a portfolio manager at Gresham Investment Management, said his fund has kept a relatively neutral stance on oil recently, but is looking for opportunities to sell.

“This is a bull market that has traveled a long way very quickly and it may now be on borrowed time,“ he said.

Write to Matt Grossman at matt.grossman@wsj.com