By Barani Krishnan

Investing.com — The dejected image of 2020 China locked down is impacting oil sentiment even though the EU-Russia dispute over Ukraine indicates that crude prices are unlikely to rise.

Oil’s global benchmark Brent and U.S. crude’s West Texas Intermediate, or WTI, benchmark were headed for a third weekly loss in four on the prospect of weaker global growth, higher interest rates and Covid clampdowns in China’s financial hub Shanghai.

By 1:47 pm ET (17.47 GMT), London-traded had fallen 1.5% or $1.61 to $106.72 per barrel. Brent suffered a loss of 4.5% this week. This was after Brent’s near-9% gain in last week and 13% fall in the previous two weeks. Brent will see April as the first negative month this year if the current declines continue.

New York-traded fell $1.63 or 1.6% to $102.16 WTI also showed 4.5% drop in week and similar volatility as Brent’s benchmark for three weeks prior.

“The risks are certainly more tilted to the upside, given the war in Ukraine and a potential embargo on Russian exports, but lockdowns in China and the risk of a Fed-driven economic slowdown are also significant,” said Craig Erlam, head of research for Europe at online trading platform OANDA.

Bloomberg reported that China’s demand for gasoline, diesel and aviation fuel in April is expected to slide 20% from a year earlier, according to people with inside knowledge of the country’s energy industry. 

That would be equivalent to a drop in crude oil consumption of 1.2 million barrels a day, they said, and will be the largest hit to demand since the lockdown more than two years ago in Wuhan — the central Chinese city where Covid-19 was first identified.  

Federal Reserve Chairman Jerome Powell also scared markets this week with his hawkish comments at the IMF/World Bank spring meetings. Powell said it would be “appropriate” for the central bank  to move faster and heavier on interest rates — a strong sign that the Fed’s rate decision committee would approve a half point rise at its upcoming May 4-5 meeting after a previous hike of just a quarter point.

“Some fear that a 50 basis point rate increase will be the first of many and could slow down the economy and the demand for oil,” Phil Flynn, energy analyst at Price Futures Group in Chicago, wrote in a commentary. 

“It is not just a tightening cycle upsetting traders overnight but also the pricing in of a 50-basis point interest rate increase by September by the European Central Bank. The Bank of Japan on the other hand wants to remain dovish but worries that the course of the U.S. and Europe could force them to change course.”

A government source revealed that the German government would reduce its growth forecasts for 2022 from 3.6% to 2.2%.