Oil Heading Toward $20 As US Dollar Appreciates: Reports

Brent crude oil prices may reach as low as $20 a barrel, driven by a rapidly appreciating dollar, Bloomberg reported, citing analysts at Morgan Stanley. Oil prices may fall by 10 to 15 percent if the dollar gains 5 percent, said the analysts in a research note Monday.

According to Adam Longson and other analysts at the bank, the global oversupply of oil may have pushed its price below $60 a barrel but it has fallen below the $35 mark due to being specifically leveraged to the dollar, Bloomberg reported.

“Given the continued U.S. dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency,” according to the analysts’ report cited by Bloomberg. “The U.S. dollar and non-fundamental factors continue to drive oil prices.”

Brent crude prices have already fallen by about a sixth, or close to 15 percent, this year, and are currently at a 12-year low. Its slide from $33.55 to $31.55 on Monday was the biggest fall since September, affected in part by continuing volatility in the Chinese stock market, which has caused havoc in global markets, many of which have seen their worst yearly starts.

A further devaluation of the yuan against the dollar is also expected to further push down oil prices.

“The focus is still on China and the demand concerns in China moving forward into 2016,” Tony Headrick, an energy market analyst at CHS Hedging LLC, told Reuters.

After hitting the day’s low of $30.5, Brent crude was at about $30.76 during early morning trade Tuesday.