After being up by as much as 22.6 points in early trade on Wednesday, the benchmark S&P/ASX200 index closed down 34.8 points, or 0.52 per cent, to 6,594.5.
The broader All Ordinaries retreated 33.8 points, or 0.5 per cent, to 6,784.3.
"Keep in mind that on Monday and Tuesday the market rose by about 1.4 per cent, so we've had a reasonable start to the week," CommSec market analyst Steven Daghlian told AAP.
The energy sector dropped 5.2 per cent, its worst single-day performance since May 1, 2020, after oil prices plummeted 9.0 per cent overnight amid fears that a global economic slowdown will crimp demand.
"But then adding to the complexity is that China is having a spike in COVID cases, including in Shanghai, the financial hub, and 15 per cent of the world's oil consumption is in China," Mr Daghlian said.
Woodside fell 6.9 per cent to $30.20, Santos dropped 6.2 per cent to $7.02 and Beach Energy retreated 8.0 per cent to $1.61.
The heavyweight mining sector dropped 5.0 per cent, its worst performance in two-and-a-half months, as metal prices dropped across the board.
BHP fell 5.6 per cent to a seven-month low of $37.76, Rio Tinto dropped 7.4 per cent to an eight-month low of $93.37 and Fortescue retreated 4.9 per cent to an eight-and-a-half month low of $16.48.
Goldminers hit their lowest levels since at least 2018 as the price of the precious metal dropped below $US1,800 an ounce for the first time since February, as rising interest rates reduce demand for the non-yield bearing asset.
Newcrest fell 6.6 per cent, Northern Star dropped 4.2 per cent to $6.91 and Evolution retreated 4.0 per cent.
But outside of the commodity players that make up about a third of the ASX, the day wasn't bad, with the tech and property sectors rising more than 3.0 per cent and both consumer sectors climbing by 1.6 per cent.
The gains for tech stocks followed an overnight rally among their larger US peers, with the Nasdaq rising 2.0 per cent.
Xero climbed 6.7 per cent, Wisetech Global advanced 3.7 per cent and Afterpay owner Block gained 4.5 per cent.
EML Payments rose 10.5 per cent to $1.42 after Spain's postal network chose to use EML's virtual prepaid cards for a 210 million euro stimulus program that will give half a million Spanish teenagers 400 euros apiece to spend on cultural activities.
Among consumer stocks, Woolworths gained 2.5 per cent, Endeavour Group added 1.6 per cent and Domino's Pizza Enterprises climbed 6.5 per cent.
The big banks were higher, with NAB rising 1.8 per cent to $28.15, CBA up 0.8 per cent to $92, and Westpac and ANZ each adding 0.9 per cent to $19.85 and $22.40, respectively.
The Australian dollar fell to a more than two-year low against its surging US counterpart, buying 68.18 US cents, compared with 68.57 US cents at Tuesday's close.
The US dollar index, which measures the strength of the greenback against a basket of other currencies, hit a 20-year high.
Overnight, traders will be watching the release of Federal Reserve minutes from last month's meeting in which the US central bank raised rates by 75 basis points, its sharpest increase in nearly three decades.
"So the markets will see if there's any surprises there, or if there's any outlook for what's ahead," Mr Daghlian said.
ON THE ASX:
* The benchmark S&P/ASX200 index closed Wednesday 34.8 points lower, or 0.52 per cent, at 6,594.5.
* The broader All Ordinaries dropped 33.8 points, or 0.5 per cent, to 6,784.3.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 68.18 US cents, from 68.57 US cents at Tuesday's close
* 92.48 Japanese yen, from 93.37 yen
* 66.41 Euro cents, from 65.72 cents
* 56.89 British pence, from 56.59 pence
* 110.33 NZ cents, from 110.37 cents
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