By Barani Krishnan

Investing.com — There’s information and then there’s disinformation. This past week, governments to markets were trying to figure out how much information – and disinformation – there is to China’s zero-Covid policy and its extended lockdown of Shanghai.

Déjà vu of a 2020 China mired in pandemic catastrophe weighed on the sentiment in oil this week, even as the EU-Russia face-off over Ukraine suggests crude prices have little way to go but up.

Global oil benchmark Brent and U.S. crude’s West Texas Intermediate, or WTI, benchmark settled down on Friday, logging a third weekly loss in four, reacting to the Covid clampdown on Shanghai, as well as the prospect of weaker global growth and higher interest rates.

According to official government data released this week, China’s economy grew 4.8% year on year in January-March.

The IMF, Bank of America, Barclays and UBS all downgraded this week their China growth forecasts in 2022.

Nomura’s forecast was especially pessimistic, a growth of just 3.9%, that would mark China’s slowest growth rate since 1990 – apart from 2020, when the pandemic derailed the global economy.

According to economists, even though the first quarter data was positive, there were storm clouds on the horizon. The key indicator of economic strength, the, dropped 3.5% in March, according to Economists.

The gloomy outlook provided a temperature check of the world’s second-largest economy, while dubious Covid-19 death rates focused attention on Beijing’s reputation for secrecy and narrative control at all costs.

But what really bothers analysts is that President Xi Jinping’s intent to force China to hew to a zero-tolerance approach towards the virus comes long after the rest of the world has moved on from the pandemic.

Guidelines in most countries including the United States state that any death where Covid-19 was a contributor or factor is considered a Covid-related one.

However, in China health officials only count those who succumbed directly to Covid-19. This excludes those whose underlying condition was made worse by the virus. Zhang ZuoFeng is an epidemiologist at University of California Los Angeles.

“If the deaths could be ascribed to underlying disease, they will always report it as such and will not count it as a Covid-related death, that’s their pattern for many years,” said Jin Dong-yan, a virologist at the University of Hong Kong’s medical school.

This narrower definition means that China’s Covid-19 deaths will be much lower than many other countries.

In the meantime, as a result of the Shanghai lockdown, Bloomberg reports that China’s demand for gasoline, diesel and aviation fuel in April is expected to slide 20% from a year earlier.

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 reported in 2020.

“Yet China is talking about reopening, and it does not seem like the demand drop helped buffer the global oil supply,” said Phil Flynn, energy analyst at Chicago’s Price Futures Group.

Oil: Weekly Settlements & WTI Technical Outlook

London-traded settled Friday’s trade down $2.13, or 1.97%, at $106.20 per barrel. Brent suffered a loss of 4.5% over the past week. This was despite a close 9% gain in last week’s trade and a 13% drop the previous two weeks. Brent will see April as the first negative month this year if the current declines continue.

New York-traded settled Friday’s trade down $2.04, or 1.97%, at $101.75. WTI dropped 4.5%, or 1.97%, for the week. It also showed similar volatility as Brent in the three prior weeks.

WTI can test the 50-Day Exponential moving average of $100.40 if there is weakness below that level. Below which, sellers might try to find the Fibonacci level at $99,” said Sunil Kumar Dixit (chief technical strategist, skcharting.com).

“Going into the week ahead, volatility is likely to continue driving oil sideways with a bearish bias,” Dixit said. “Major support and downside targets are at $92.93 and $92.”

“WTI’s weekly stochastic reading of 41/46 and Relative Strength Indicator of 58 indicate that trend is weakening and lower prices are very likely,” he added.

Dixit stated that buying is possible if the price moves above the 50-Day EMA at $100.40.

Gold: Weekly Market Activity 

To, and joined other energy commodities and oil on Friday in the red buffet Wall Street indexes of the to the and

​​“Every time you get this massive acceleration down in equities on rate hike talks, you’re going to have some follow-through selling on precious metals,” Phillip Streible, metals strategist at Blue LIne Futures in Chicago, said. “The baby goes out with the bathwater, so to speak.”

on New York’s Comex settled Friday’s trade down $15.70, or 0.8%, at $1,932.50 an ounce. The week’s decline was 2%. This unexpected drop comes after Monday’s upward swing to an all-time high of $2,000.

The benchmark was close to its December 2018 highs, while gold fell as it hit 101.34 Friday.

“High inflation and an uncertain economic environment have been very supportive for the yellow metal and I don’t expect that to change but the more tightening markets price in, the more resistance we’ll see gold rallies,” said Craig Erlam, analyst at online trading platform OANDA.

“Of course, that may change if recession warnings start flashing but as yet, there remains some confidence that this can be avoided,” said Erlam. “The 5/30-year bonds have inverted again which may cause some alarm but at the moment, the 2/10 spread remains positive, just.”

Friday’s liquidation trigger for markets came from tough rate hike language that was started early in the week by an array of Fed officials – including James Bullard and Mary Daly, who head the central bank’s St. Louis and San Francisco divisions, respectively – and was echoed toward the end of the week by Chairman Jerome Powell himself.

All were pushing for a 50-bps, or half percentage point, hike at the Fed’s next policy meeting set for May 4-5 after the mere 25 bps, or quarter point, increase in March. Bullard even suggested a 75-bps (or three-quarter-point) hike, at one point. He said that the Fed had been way behind in its fight against inflation, which showed no signs of slowing down from the 40-year peak.

“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,” said Phil Flynn.

“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,” added Flynn. “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.”

Flynn’s colleague Fawad Razaqzada was an analyst with ThinkMarkets.

“We won’t be hearing much from Fed speakers in the next couple of weeks as we enter the blackout period ahead of the central bank’s May 4 meeting. But the damage has already been done and the message has been loud and clear: US Federal Funds Rate will most likely rise by 50 basis points at that meeting,” said Razaqzada.

Technical Outlook: Gold

According to Dixit, skcharting.com, a steady move below $1930 would push gold towards the fibonacci level at 61.8%, $1,900, and ultimately $1,888.

“The weekly stochastic and RSI readings of 51/58 and 56 are pointing to further downside,” he said, referring to the .

Dixit indicated that prices could sustain higher than the 50% Fibonacci level, $1,930. On the other hand, the first upside target for the 38.2% Fibonacci levels of $1.960, Dixit noted.

“If gold attracts enough buying above $1,960, it can retest the 23.6% Fibonacci level at $2,001,” he added.

Disclaimer:Barani Krishnan has no positions in the securities and commodities that he writes about.