The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price has continued its slide on Wednesday.

In morning trade, the pizza chain operator’s shares were down 3% to a new two-year low of $57.24.

This latest decline means the Domino’s share price is now down a massive 65% from its 52-week high of $163.65.

Why is the Domino’s share price at a 52-week low?

The Domino’s share price has come under pressure this year amid concerns over its softening performance.

For example, although the pizza chain reported a 4.6% increase in global sales to $3.92 billion in FY 2022, its profits fell 12.5% to $165 million.

This was driven by significant margin pressures caused by inflationary headwinds. And with inflation not going away in a hurry, investors appear concerned that these margin pressures will continue for a little while to come.

Furthermore, while the company has been raising prices to combat inflation, there are only so many price rises you can give to customers before they start pushing back.

Is this a buying opportunity?

A recent note out of Citi reveals that its analysts are suggesting that investors take advantage of the weakness in the Domino’s share price.

Although Citi acknowledges that trading conditions remain challenging, it thinks investors should focus on the company’s very positive medium and longer term outlook. It explained:

Our analysis of high frequency data suggests sales growth is accelerating in Japan despite cycling tough comps in the pcp. However, website traffic in other key markets (Europe and Australia) remain weak likely due to cost of living pressures, labour challenges, competition and somewhat questionable execution in France. However, we remain positive on the medium term outlook given same store sales appear on track to turn positive and some inflationary headwinds are moderating. The longer term store rollout opportunity has grown supported by the recent Asian acquisition. We also see further upside potential from additional acquisitions. Maintain Buy.

Citi has a a buy rating and $84.40 price target. This implies potential upside of almost 50% for investors over the next 12 months.

The post Why did the Domino’s share price just slump to a two-year low? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Brickworks Limited (ASX: BKW) share price isn’t doing much after the business released its FY22 result. But, the business’ dividend could capture some investor attention because of how reliable it has been over the long term.

The building products business reported a statutory net profit after tax (NPAT) of $854 million (up 257%). It also declared a record underlying net profit from continuing operations of $746 million (up 159%).

Brickworks’ board decided on a final dividend per share of 41 cents per share, which was an increase of 3%. Its total full-year dividend went up by 3% as well, to 63 cents per share.

Brickworks’ enviable dividend record

The business told investors that with these latest dividends, its normal dividend has been maintained or increased every year since 1976.

Brickworks boasted about its “long history of dividend growth”. The company said it has been 46 years since the normal dividend was last decreased.

Referencing the company’s dividends and capital management, Brickworks chair Robert Millner said:

We are proud of our long history of increasing dividends, which we have maintained or increased for 46 years. This is a testament to our strong financial position, prudent capital management and our diversified business model.

Despite our significant investment program over the past few years, our borrowing level remains conservative. Net debt declined by $25 million during FY2022 to finish the year at $493 million, with gearing of 15%.

How does Brickworks pay for its dividend?

Brickworks pays for its dividend with the cash flow from its investments division and property trust.

In FY22, the business paid $94 million of dividends and it generated total operating cash flow of $130 million.

Within that total, Brickworks received net trust income from the property trust of $36 million (up 17%). And the dividends received from its investments division rose by 5% to $61 million. Those two elements combine to a total of $97 million, covering the dividends paid entirely.

Further growth of the rental profit from its property trusts and the rising dividends from its investment division could help grow the Brickworks dividend, particularly as the company completes more properties within the industrial property trust.

What is the dividend yield?

Based on the annual payout of 63 cents per share, the current Brickworks share price offers a grossed-up dividend yield of 4.2%.

How has the result been received?

While investors haven’t pushed up the Brickworks share price, analysts thought the result is a good one.

According to reporting by The Australian, analyst Suraj Nebhani from the broker Citi thought the result was a “massive consensus beat” thanks to the property division.

The analyst noted that uncertainty is rising, though Brickworks is confident about growth within the property business in FY23. However, the rising interest rates could impact future property profits.

The post Brickworks has maintained or grown its dividend every year for 46 years. Here’s the latest appeared first on The Motley Fool Australia.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has positions in Brickworks. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks. The Motley Fool Australia has positions in and has recommended Brickworks. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Could the stock market really crash 40%?

Whether you’ve invested in ASX shares or international shares, it’s a frightening figure.

And with the US Federal Reserve likely to hike interest rates in the world’s top economy by another 0.75%, or perhaps even 1%, tonight, it’s a question that’s on many investors’ minds.

The Fed’s series of 2022 rate hikes have already pushed the NASDAQ-100 (NASDAQ: NDX) down 28% this calendar year. Coupled with the rate rises from the RBA, that’s also sent the S&P/ASX 200 Index (ASX: XJO) down 11% year-to-date.

So, is a stock market crash still looming?

Dr Doom warns of 40% stock market crash

Nouriel Roubini, CEO of Roubini Macro Associates, has long been dubbed Dr Doom for his penchant for bearish forecasts.

While he hasn’t gotten all those forecasts correct, he did nail the 2008 GFC well before it fully unfolded.

Now, as Bloomberg reports, Roubini sees a “long and ugly” global recession taking hold by the end of this year and lasting through 2023.

He also believes this will lead to a full-blown stock market crash, with “a real hard landing” leading to a potential 40% fall in the S&P 500 Index (SP: .INX). A stock market crash that would likely be mirrored on the ASX.

“Even in a plain vanilla recession, the S&P 500 can fall by 30%,” Roubini said.

Of particular concern are the mountains of debt held by governments and corporations. Debts that will get far more costly to service as interest rates shoot higher from their recent historic lows.

According to Roubini (quoted by Bloomberg):

Many zombie institutions, zombie households, corporates, banks, shadow banks and zombie countries are going to die. So, we’ll see who’s swimming naked.

Roubini also cites numerous supply side issues that are likely to continue putting upward pressure on prices. These include Russia’s invasion of Ukraine, alongside China’s COVID-zero lockdown policies crimping output in the world’s most populous nation.

With these factors in mind, Dr Doom believes the Fed will “probably have no choice” but to eventually raise rates to around 5% next year.

And investors hoping for some helpful stimulus to avoid a stock market crash will be left wanting. “If you do fiscal stimulus, you’re overheating the aggregate demand,” he said.

“It’s not going to be a short and shallow recession, it’s going to be severe, long and ugly,” he said. Adding that, “You have to be light on equities and have more cash.”

Of course, not everyone agrees.

Take the long-term investing view and sleep well

Rather than pen my own takeaway here, I’ll defer to The Motley Fool’s chief investment officer, Scott Phillips.

Writing in a Take Stock yesterday, Phillips said that “worrying about volatility or ‘watching’ the markets” are not things he does.

“The truth is that I can’t remember ever being kept awake by the stock market,” he said. “And I invested during the dot.com boom and bust. I invested during the GFC. And I invested during the COVID [stock market] crash.”

Phillips admits these weren’t easy times, with ASX and international share portfolios often deeply in the red.

However, his restful nights when others were tossing and turning worried about a stock market crash were a result of the historical truth of investing.

“The lesson of history on the stock market is that compound gains of around 9% per annum have been the norm,” he said. “That includes all three crashes – dot.com, GFC and COVID.”

Philips said investors should certainly expect market volatility, just as in the past. But he noted, “Patiently investing – saving, adding, and waiting – has been an extraordinary way to build seriously impressive long-term wealth.”

Taking a multi-decade investment horizon helps put some perspective on any potential pending stock market crash.

Doing so, Phillips said, “means that whatever happens today, tomorrow, this year or next year is all but irrelevant”.

“I expect that in 2052, we’ll look back at 2022 and wish we’d all invested more money, today,” he added.

The post Could the stock market really crash 40%? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Viva Energy Group Ltd (ASX: VEA) share price is rocketing this morning after the company announced a $300 million acquisition.

It will be taking on Coles Group Ltd (ASX: COL)’s namesake fuel and convenience retailing business, Coles Express.

The acquisition will see the S&P/ASX 200 Index (ASX: XJO) energy favourite running Australia’s single largest fuel and convenience network under a single operator.

The Viva Energy share price is taking off on the back of the news, rising 5.51% to trade at $2.775.

Let’s take a closer look at the latest move from the fuel refiner and supplier.

Viva Energy share price rockets on $300m acquisition

The Viva Energy share price is surging on Wednesday after the company announced it will be snapping up Coles Express, bolstering its Australian fuel and convenience network by 710 sites.

Coles and Viva Energy previously operated Coles Express in partnership, with Coles operating the stores and Viva taking control of retail fuel pricing and marketing.

Their previous agreement was to expire in 2029 when Viva Energy would take control of both businesses. The company has today said that bringing them together now, rather than at the end of the partnership, will allow it to better optimise and grow the network.

Viva Energy will be snapping up the Coles Express retail business for $300 million.

The acquisition will have a $143 million net impact and will be funded entirely from cash reserves and debt facilities.

Integration costs are expected to come in at between $120 million and $140 million over the next three years.

The acquisition is also expected to bring earnings per share (EPS) accretion of 11% to 18% on a pro-forma, post-integration, financial year 2021 basis. That’s assuming the network’s weekly fuel volumes increase to between 65 megalitres and 70 megalitres.

Most of the Coles Express sites dotted around the nation will be rebranded over the coming two years. The network will continue to carry the Shell brand under a long-term licence agreement through to 2029.

The companies have also entered a transition services agreement. That will see Coles support Viva Energy in areas like IT, accounting, and human resources.

The acquisition is set to be finalised in the first half of next year. Coles Express will then be operated as an independent business.

What did management say?

Viva Energy CEO and managing director Scott Wyatt commented on the news driving the company’s share price today, saying:

We have enjoyed a strong partnership with Coles over the last 20 years and this is an exciting next step for our business and our relationship.

Coles Express is a leading convenience retailer with considerable retail capability and experience. The acquisition of this business, and the establishment of an integrated fuel and convenience business unit, will put the Company in a strong competitive position to leverage our high-quality networks and pursue long term growth opportunities in the fuel and convenience sector.

Viva Energy share price snapshot

The Viva Energy share price has been powering up lately.

Today’s surge included, it has gained 19% since the start of 2022. It’s also currently 21% higher than it was this time last year.

For comparison, the ASX 200 has fallen 11% year to date and 7% over the last 12 months.

The post Viva Energy share price leaps 5% on Coles acquisition appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Nickel Industries Ltd (ASX: NIC) share price is falling wayside during trade on Wednesday morning.

This comes after the company announced a long-term strategic cooperation agreement with PT QMB New Energy Materials (QMB).

At the time of writing, the nickel producer’s shares are down 1.4% to 88.3 cents.

Nickel Industries secures long-term contract

The dip in the Nickel Industries share price appears to be coming from a broader sell-down across the ASX today. Wall Street recorded losses overnight as the United States Federal Reserve looks all but certain to lift interest rates by 75 basis points tomorrow.

In today’s release, Nickel Industries advised that it will supply 5 to 7 million wet metric tonnes per annum of limonite ore to QMB’s upcoming concentrator plant.

Subject to necessary approvals, QMB will build the concentrator plant within the Hengjaya Mine area. This will allow ore to flow through a pipeline to its newly commissioned high pressure acid leach (HPAL) plant.

The agreement between the parties will run for 20 years.

In addition, the agreement allows for the exploration of an option for Nickel Industries to take equity participation in the QMB HPAL plant.

If executed, this could see the company produce nickel and cobalt for the growing electric vehicle battery supply chain.

However, discussion on the finer details regarding the long-term agreement must take place. This will include the sale price for limonite ore.

Nickel Industries’ managing director, Justin Werner commented:

We are pleased to announce the signing of a long-term strategic cooperation agreement with QMB, a leading global new energy material company. The long-term supply agreement to the QMB HPAL plant highlights the tremendous strategic value of the world-class Hengjaya Mine resources, both limonite and saprolite. It follows our recently updated JORC resource of 3.7 million tonnes of contained nickel metal, which places the Hengjaya Mine among the top 10 nickel resources globally.

Nickel Industries share price snapshot

After reaching an all-time high of US$43,000 per tonne in mid-March, nickel is now fetching US$24,000 per tonne.

Subsequently, this impacted the Nickel Industries share price. It fell to a 52-week low of 84.5 cents on 7 September.

Year to date, the company’s shares are down 38.3%.

Nickel Industries has a price-to-earnings (P/E) ratio of 8.97 and commands a market capitalisation of approximately $2.44 billion.

The post Why is the Nickel Industries share price dipping on Wednesday? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Link Administration Holdings Ltd (ASX: LNK) share price is sinking again on Wednesday.

At the time of writing, the administration services company’s shares are down 5% to $3.28.

This latest decline means the Link share price is now down over 40% since the start of the year.

Why is the Link share price sinking?

Investors have been selling down the Link share price today after the company provided an update on the Woodford investigation.

Link is the owner of Link Fund Solutions Limited (LFSL), which managed the now-collapsed Woodford Equity Income Fund.

According to today’s update, the UK Financial Conduct Authority (FCA) has issued a draft warning notice in accordance with the settlement decision procedure to LFSL in respect of the Woodford Investigation.

The FCA has assessed the appropriate penalty as 50 million pounds (A$85 million) plus a restitution payment of approximately 306.1 million pounds (A$520 million).

What impact will this have on its takeover?

Things don’t look good for Link’s takeover. While the draft notice is not a final decision, Link notes that it triggers the Woodford Matters condition under the scheme implementation deed with Dye & Durham.

Earlier this week, Dye & Durham amended its takeover offer to be $3.81 per share plus a contingent payment.

However, if this draft notice becomes definitive, there will be no contingent payment. Furthermore, the penalty of 50 million pounds was not accounted for previously and could also impact the offer price. That’s if Dye & Durham doesn’t just walk away from talks.

The Link board has already said it would be unable to recommend a $3.81 per share offer. So, it appears highly unlikely that Dye & Durham will return with an improved offer that could be recommended given this news.

This goes some way to explaining why the Link share price is trading at such low levels today.

The post Link share price sinks again amid takeover doubts appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Link Administration Holdings Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The US stock market will reach a key inflection point tonight that could set the tone for ASX shares for the rest of the year.

The US Federal Reserve will be handing down its interest rate decision on Thursday with the market fully pricing in a 75-basis point (bp) hike.

If that comes to pass, it will be the Fed’s third three-quarter point hike and would lift the Fed Funds Rate from 3% to 3.25%. That would be the highest since the start of the GFC in 2008!

What is spooking the US stock market?

But the Fed could be even more aggressive. The futures market is pricing in a 16% chance that the Fed could hike by a full percentage point, reported Reuters.

The US stock market is on tenterhooks. Investors are split over whether the Fed will hike rates to a point that will trigger a recession.

Adding to the angst is the prediction by “Dr. Doom”, Nouriel Roubini, that the US and the world is facing a “long and ugly” recession, reported Bloomberg.

Dr. Doom’s warning of a 40% crash in the US stock market

In fact, the economist believes the S&P 500 Index (SP: .INX) will crash by 40% if the US economy comes in for a hard landing. Make no mistake, the S&P/ASX 200 Index (ASX: XJO) won’t be spared even if our economy holds up better

Roubini correctly forecasted the GFC to earn his nickname. He said:

Even in a plain vanilla recession, the S&P 500 can fall by 30 per cent…It’s not going to be a short and shallow recession, it’s going to be severe, long and ugly.

How high can the Fed go?

His pessimism is premised on the Fed hiking rates to a peak of 5% in this cycle. That’s well above expectations that the central bank will top out at a little over 4% before cutting rates next year to stave off a bad recession.

But Fed Chair Jerome Powell may not have that luxury as Dr. Doom reckons achieving a 2% inflation rate without a hard landing will be “mission impossible”.

While there are early signs that inflation is easing, economists are divided on how quickly price pressures will ease.

ASX shares to feel the heat

If the Fed were to lift borrowing costs by more than expected, it will put pressure on our RBA to be more hawkish. Our reserve bank may be independent, but as a player in the global economy, relative rates matter more than the RBA cares to admit.

The US stock market is yet to price in 5% interest rates, let alone a long hard recession. This is why investors will be hanging on to Powell’s every word tonight.

ASX investors will have a fretful 48 hours though as we have been “blessed” with a public holiday tomorrow.

The earliest we can react to the Fed’s decision will be Friday, although Victoria will be on another holiday.

Go Cats!

The post Thursday is an important day for the US stock market. Here’s why appeared first on The Motley Fool Australia.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Brickworks Limited (ASX: BKW) share price is forging into the green in morning trade amid the company reporting its full-year results for FY22.

Shares of Australia’s largest building products manufacturer currently trade for $21.76 apiece, up 0.32%, after dropping as low as $21.05 shortly after market open.

Let’s go over the report’s highlights.

What did Brickworks report?

• Total revenue up 28% year over year (yoy) to $1.09 billion
• Underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) up 133% yoy to $1.05 billion
• Underlying net profit after tax (NPAT) up 159% yoy to $746 million
• Final fully franked dividend of 41 cents per share

Brickwork’s standout operating segment for the year was property. Namely, its industrial property portfolio around Sydney and Brisbane. Total earnings for the segment increased 155% yoy to $644 million.

The company stated its portfolio benefited from a “strong uplift in valuation in response to the burgeoning demand for prime logistics and warehousing space. In addition, strong development activity contributed to the Property result.”

Meanwhile, Brickwork’s earnings for building products also grew in Australia and the United States. This was said to be helped by the company’s investment in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

Revenue for building products in Australia grew 7% to $694 million, and EBITDA grew 110% to $205 million.

Over the same period, revenue for North American building products grew considerably more, recording a 97% gain to $399 million while EBITDA grew 84% to $48 million.

Brickwork’s fully franked dividend of 41 cents per share has a record date of 2 November and an expiry date of 1 November. The expected payment date is 23 November.

What else happened in FY22?

The company’s joint venture trust value surged in FY22 to $1.54 billion, up from $631 million in FY21.

As well, Brickworks launched an additional joint venture property trust with Goodman Group (ASX: GMG) comprising 15 manufacturing facilities. The total value of the trust stands at $416 million.

Brickworks also notes that despite its considerable investments over the years, its leverage remains low, with a net debt-to-equity ratio of 15%.

What did management say?

Brickworks managing director Lindsay Partridge commented on the growth of its Industrial JV trust:

A highlight for the year was the completion of the state-of-the-art Amazon distribution centre, the first facility at Oakdale West, in Sydney. This followed many years of planning and investment in site preparation and infrastructure at this Estate. With further facilities now close to completion, Oakdale West is well on the way to becoming one of the most prestigious industrial property precincts in the southern hemisphere. Other Estates at Oakdale South (Sydney) and Rochedale (Brisbane) have now been fully built out, following the completion of final developments at these precincts during the second half.

What’s next?

Partridge described the future as having “an increasingly uncertain outlook”. Some factors at play were stated to be rising interest rates and threats of a recession.

He also gave the following commentary on what the future could look like:

There is a significant development pipeline within the Industrial JV Trust, and the continued development of Oakdale West will drive asset growth over the coming years. The anticipated sale of the balance of Oakdale East into the Trust in FY23 will support continued growth over the medium term. We continue to explore property opportunities in North America, and have recently executed a non-binding Heads of Agreement with Goodman, to investigate the development of the Mid-Atlantic site in Pennsylvania. From FY23, Property will also include earnings generated by the Brickworks Manufacturing Trust.

Brickworks share price snapshot

The Brickworks share price is down almost 12% year to date.

Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is around 11% lower over the same period.

The company’s current market capitalisation is $3.28 billion.

The post Brickworks share price edges higher on $746 million profit result appeared first on The Motley Fool Australia.

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Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Coles Group Ltd (ASX: COL) share price is trading lower on Wednesday.

At the time of writing, the supermarket giant’s shares are down 0.25% to $16.72.

Though, this is better than the ASX 200 index, which is down over 1% currently.

What’s going on with the Coles share price today?

The Coles share price is outperforming the ASX 200 on Wednesday after it announced a major divestment.

As we reported here earlier, Coles has entered into a binding agreement to sell its fuel and convenience retailing business to Viva Energy Group Ltd (ASX: VEA) for $300 million.

Once complete, the transaction will see Viva Energy own and operate the 710 Coles Express sites currently operated by Coles. In addition, the Fuel and Convenience Alliance between Coles and Viva Energy, which was due to end in 2029, will terminate upon completion.

These 710 Coles Express sites will be rebranded by Viva Energy over the next two years. However, the two parties have entered into a multi-year strategic partnership. This will mean that Coles and Coles Express customers continue to enjoy “the compelling customer offer and loyalty benefits they currently enjoy at Coles Express sites.”

Though, it is worth noting that the deal is subject to customary closing conditions. This includes Viva Energy obtaining Australian Competition and Consumer Commission (ACCC) and Foreign Investment Review Board (FIRB) approval. If all goes to plan, completion is expected to occur in the second half of FY 2023.

Why is Coles selling?

Coles’s CEO Steven Cain revealed that selling the business will allow the company to focus on its supermarket and liquor businesses, as well as its ambition to become Australia’s most sustainable supermarket company. He commented:

This agreement is positive not only for Coles and Viva Energy, but also for our customers, team members and respective shareholders. Viva is well-placed to make the most of opportunities to grow the Express business into the future, while we will strengthen our focus on our omnichannel supermarket and liquor businesses and our ambition of becoming Australia’s most sustainable supermarket group.

Judging by the relative outperformance of the Coles share price today, it appears as though the market supports this transaction.

The post Coles share price falls despite $300m Coles Express sale appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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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.

The post Why is the oil price sinking lately? appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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