Oil is a commodity and tends to see larger fluctuations as a lot of factors influence its price, particularly the decisions about output made by producers, laws of supply and demand, geopolitical tension and availability of storage capacity.

Nearly two years ago, when coronavirus spread around the world, a historic drop occurred when the price of West Texas Intermediate crude dropped by almost 300% trading at around negative $37 per barrel. The negative price means oil producers were paying buyers to take the commodity off their hands over terror that storage capacity could run out.

The Organization of the Petroleum Exporting Countries (OPEC) decided to reduce oil supply by 9.7 million barrels per day in response to decline in demand in March and April 2021.

After the ease of lockdown measures, global energy demand rebound, hence causing inceptive upsurge in energy prices. In July 2021 OPEC+ agreed to gradually restore production by adding 400,000 barrels per day to production each month, although some members repeatedly failed to reach their targets, which repressed oil supply. Russia's war in Ukraine in late February 2022 further aggravated the supply issue, and the already inflated crude oil price peaked at nearly $140 per barrel in early March. In June 2022, the oil prices started declining and around the first week of July oil market sustained their heaviest fall since March and tipped below $100 per barrel.

JP Morgan Chase warns that if Russia put up a fight against sanctions enforced by the G7 countries by cutting its crude oil output, the global prices could reach $380 a barrel. On contrast, Citigroup is indicating that oil could collapse to $65 a barrel by the end of 2022 with a possibility of global recession.

Why are oil prices dropping?

The world have a history of global recessions, and the one in 2008 slumped energy prices. Crude oil fell from $133.88 in June 2008 to a low of $39.09 in February 2009 and natural gas prices went down from $12.69 to $4.52. The drop in energy demand around the globe plummeted the prices, hence lower corporate earnings led to increase in unemployment and lower spending.

Ed Morse, Citigroup's global head of commodity research, and his team currently offer a 40% probability of global recession. The world is fearing another recession that could reduce energy demand and repeat history. Nations around the globe are already battling rising prices as energy shortage rises and inflation rates escalates. According to preliminary figures from Europe's statistics office Eurostat, the inflation rate for June reached 8.6% while for May it was 8.1%. According to Bloomberg, the eurozone is likely to enter a mild recession in the second half of this year.