Authored by Jonathan Lacalle,

Oil prices are soaring, and, as always, we read in many articles that OPEC and Russia are to blame. However, if OPEC and its allies were almighty and the drivers of oil prices, why have Brent and West Texas Intermediate (WTI) crude plummeted in 2022? OPEC only reacts to demand, but it is not a price-setter. It is a price-taker.

WTI is up 13% year-to-date, but it only started bouncing in May. WTI is only up 6% in the past year. At $90.7/barrel, it is still far away from the June 2022 high of $122/barrel and barely reaching the levels of November 2022.

What made oil prices plummet from their June '22 highs? Rate hikes and monetary contraction sent the entire commodity complex down to pre-Ukraine invasion levels despite production cuts, geopolitical risk, and the Chinese re-opening. Commodity prices are driven by monetary factors, and the hawkish stance of global central banks accelerated the decline despite supply chain challenges and limits to production. Added to the decline in the money supply and rate hikes, the United States and non-OPEC production offset the negative impact of Russia and OPEC limits on some exports. Competition works. Finally, oil prices stumbled as Asian demand ended up being weaker than estimated, with global industrial production declining, particularly in developed economies.