Strong USD Putting Pressure on Oil

January 11, 2016 Share Print 0

The strengthening U.S. dollar could send oil plunging to $20 per barrel.
That’s the view of analysts at Morgan Stanley. In a report published Monday, they say a 5% increase in the value of the dollar against a basket of currencies could push oil down by between 10% and 25% — which would mean prices falling by as much as $8 per barrel.

Crude futures are already trading at around $32.50, near their lowest levels in 12 years. Prices slumped 1.8% on Monday, and are 13% down so far this year.
Oil has dropped more than 65% since a peak 18 months ago. Analysts have attributed the slump to a global supply glut brought about by slowing demand and high production.

But the report by Morgan Stanley (MS) says the dollar’s gains are also to blame. Global oversupply may have pushed oil below $60 per dollar, but the recent falls are due to sharp currency moves.

The International Energy Agency expects the oil market is likely to remain oversupplied throughout 2016. And if the dollar keeps strengthening, it could squeeze prices even further, according to Morgan Stanley.
“Given the continued US [dollar] appreciation, $20-25 oil price scenarios are possible simply due to currency,” the analysts wrote.

via CNN

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.