Strong USD Putting Pressure on Oil

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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