Not since the 1970s has there been such an emphasis on a potentially uncontrollable oil price.
Back then, we had an unhappy triad of stagflation, soaring commodity prices and geopolitical tension [of note, the OPEC oil embargo to the U.S.] feeding into the oil markets.
Eventually, interest rates tipped past 20% to combat the inflation dynamics and from then on, there's been a number of peaks and troughs in the oil price, the latest from FY20 to date.
After a strong rally from December 2021 to 8 June 2022, Brent Crude now trades more than 5% down on the month at US$90.6/Bbl, having sunk from highs of US$139/Bbl in March.
What's behind the moves?
Chief to the downside in the oil price has been concerns about a slowdown in the global economy.
Whereas traders first rallied the Brent Crude oil contract on the back of geopolitical tensions in Europe and elsewhere, the scene has shifted to that of lower demand.
As central banks around the world embark on their monetary tightening regimes to combat inflation, the outlook for global economic growth is also tightening.
Not helping the situation is the strength of the US Dollar, at its highest mark in years relative to most other currencies, making oil [in some instances, prohibitively] expensive.
Commodity analysts at UBS echoed this sentiment, noting the oil market "is caught between downward concerns and upside hopes".
"The concerns are driven by the aggressive monetary tightening in the U.S. and Europe, which is increasing the likelihood of a recession and might weigh on oil demand prospects," it added.
Meanwhile, analysts at Mizuho Securities said in a recent note the US dollar and the US Fed "is key" to the oil price, and that "they're [the Fed] going to kill demand for anything inflationary," including commodities like oil.
Not to mention, the Organisation of the Petroleum Exporting Countries (OPEC) also fell short of target output numbers in August by nearly 3.6 million barrels.
With global oil prices established via the complex interplays of supply and demand, this is sure to have an impact on the oil price too.
However, it appears concerns about a recession in Europe and the United States continue to be the major drivers behind oil's latest drop.
As to where it will be next, that's a bold prediction that many aren't game to make right now. With the rally in Brent Crude now settled, it may be that the above mentioned points continue to weigh the price of oil down.
The downside in oil hasn't been terrible for dominant energy players such as Woodside Energy Ltd (ASX: WDS) and Santos Ltd (ASX: STO). Each are up 51% and 24% in the year to date, respectively.
It remains to be seen just how much of an impact the decline in oil pricing will have on this broad basket.
