By Barani Krishnan

Investing.com — Crude prices fell about 5% Tuesday, snapping a four-day rally, as commodities from oil to gold sold off after the International Monetary Fund slashed its world growth forecasts for 2022 and next year due to runaway inflation and other economic challenges caused by Russia’s invasion of Ukraine.

Three people died from Covid complications after being reported in Shanghai, China’s financial center. This added to fears that the pandemic could return in China’s second-largest economy.

Growing fears of a U.S. recession as the Federal Reserve tries to thwart inflation with some of the most aggressive rate hikes in history also dampened sentiment in raw materials — which had seen huge price swings lately as investors tried to balance costs with what consumers could afford to pay.

At $107.41 per barrel, the London-traded international benchmark for crude oil, a drop of $5.42 (or 4.8%) was recorded by 17:30 GMT. This fell to $106.85, a session high of $6. 

New York-traded  , or WTI, the benchmark for US crude, lost $5.03, or 4.7%, to trade at $102.58. WTI closed at $101.55. 

The two crude benchmarks had gained about 15% over four previous days of trading, rallying on expectations of a greater supply squeeze in Europe as Western nations mulled the possibility of a full import ban of Russian oil and gas to add to Moscow’s punishment over its role in the Ukraine conflict.

Prior to this week’s rally, Brent and WTI lost about 13% each over two cumulative weeks as China’s lockdown of Shanghai over Covid concerns sparked worries about oil demand in the world’s second largest importer of the commodity.

“With so much volatility in intraday oil prices, and extreme reactions to headline risks … I continue to expect that Brent will remain in a choppy $100 to $120 range, with WTI in a $95 to $115 range,” said Jeffrey Halley, head of research for Australia and Asia-Pacific at online trading platform OANDA.

According to the International Energy Agency, around 3.0 Million barrels per day of Russian oil may be imported from May. This could occur due to either sanctions or buyer shunning Russian cargoes.

According to Interfax, Russian oil production continued its slide in April. It fell by 7.5% in February, compared with March.

Tuesday’s slump in oil came as the IMF said in an update of its World Economic Outlook that global gross domestic product, or GDP, will likely expand by only 3.6% this year and next. That was a downgrade of 0.8 percentage point and 0.2 percentage point, respectively, from the IMF’s previous GDP outlook published in December. 

After the Covid-induced 4.9% slump that occurred in 2020, world growth rose by 6.1% between 2021 and 2021.

It did more than just revise its GDP outlook. The IMF also raised its inflation expectation to an average 5.7% across advanced economies and 8.7% among emerging economies. They cited inflation and other issues from the Russia-Ukraine crises.  That was  1.8 points and 2.8 points higher, respectively, from its previous inflation forecast.

“Economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and add to inflation,” the IMF said. “Fuel and food prices have increased rapidly, hitting vulnerable populations in low-income countries hardest.”

U.S. bond prices also fell Tuesday due to fears about a US recession. This was because the Fed is planning aggressive rate increases in order to combat inflation. To December 2018, highs, the yield on the jumped for the fourth consecutive day.  

The Fed had slashed rates nearly to zero during the outbreak of coronavirus, and on March 16 it approved the first rate increase in pandemic-era history, increasing rates by 25 basis point, or one quarter point. Since then, many central bank officials have felt that the rate hike was not enough to stop inflation from reaching 40-year highs. 

As many as seven rate increases are being considered by the Fed this year. They will continue them until 2023, when inflation is expected to drop below 2% per year. James Bullard, the head of St. Louis Fed suggested that a maximum of three-quarters of a point be raised to speed up inflation fighting.

Bullard’s comments were one reason for Tuesday’s selloff in commodities, with dropping more than 1%, 2% and nearly 10% after the , which determines pricing for most raw materials, hit two-year highs, impacting international demand for goods.